Technical analysis and market efficiency: Evidence from frontier, emerging, and developed markets
Author
Hansen, Mads
Term
4. semester
Publication year
2024
Abstract
This thesis examines whether technical analysis can generate abnormal returns across markets with differing levels of efficiency, contributing to the debate between the Efficient Market Hypothesis and behaviorally driven market inefficiencies. Focusing on frontier, emerging, and developed markets (including Vietnam, China, and the United States), the study backtests four rule-based strategies—moving average, RSI, breakout, and a combined approach—over 2014–2023. Strategies are benchmarked against a buy-and-hold approach and assessed using both return and risk-adjusted metrics (e.g., Sharpe, Sortino, Calmar, and maximum drawdown). The results show that in the developed market no strategy outperforms buy-and-hold, which maintains superior returns and risk-adjusted performance. In the emerging market, one strategy significantly outperforms the benchmark but with higher risk, while in the frontier market one strategy delivers better risk-adjusted performance despite a lower total return. These findings indicate that technical analysis can exploit inefficiencies in less developed markets but has limited effectiveness in developed markets, suggesting that the weak-form Efficient Market Hypothesis does not universally hold as efficiency varies with trader behavior, market dynamics, and regulation.
Denne afhandling undersøger, om teknisk analyse kan skabe merafkast i aktiemarkeder med forskellig grad af effektivitet, og bidrager dermed til debatten mellem den effektive markedshypotese og adfærdsbaserede forklaringer på markedsineffektivitet. Med udgangspunkt i frontier-, emerging- og udviklede markeder (herunder Vietnam, Kina og USA) gennemføres en empirisk backtest af fire regelbaserede strategier—glidende gennemsnit, RSI, breakout og en kombineret tilgang—i perioden 2014-2023. Strategierne benchmarkes mod en køb-og-behold-tilgang og evalueres på både afkast og risikokorrigerede mål (fx Sharpe, Sortino, Calmar samt maksimum drawdown). Resultaterne viser, at ingen strategi overgår benchmark i det udviklede marked, hvor køb-og-behold bevarer de bedste afkast og risikokorrigerede profiler. I det emerging marked overperformer én strategi signifikant benchmarket, dog med højere risiko, mens én strategi i frontier-markedet leverer bedre risikokorrigeret performance, om end med lavere samlet afkast. Fundene indikerer, at teknisk analyse kan udnytte ineffektivitet i mindre udviklede markeder, men har begrænset effekt i udviklede markeder, og de peger på, at svag-formen af den effektive markedshypotese ikke gælder universelt, idet markeds effektivitet varierer med adfærd, markedsdynamik og regulering.
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