Profitability Of Moving Average Convergence Divergence And Moving Average Rules On Vietnamese Stock Market

Numerous empirical studies have examined the profitability of technical trading rules on a wide variety of markets. Despite positive evidence about predictability and improvements in testing procedures, skepticism about technical trading profits remains widespread among academicians mainly due to data snooping problem. When a set of data is repeatedly used to search for profitable technical trading rules, systems, markets, or performance measures, any successful results can be obtained by chance.The main objective of this dissertation is to investigate whether the technical trading rules which have been proved to be profitable in developed and emerging markets have predictable power in Vietnamese stock market.Some studies on Moving Average Convergence Divergence (MACD) trading rules published recently (Dejan Eric 2009; R. Rosillo.2013; Terence Tai-Leung Chong 2008; Ulkii and Prodan 2013) uncover that MACD trading rules have predictive ability in many countries. The MACD trading strategies applied by these papers to execute the trading signals are various. Similar to that on MACD rules, a well-known paper on Moving Average (MA) trading rules published by (William Brock 1992) gave strong evidence on usefulness of MA trading rules on U.S market. Thereafter, a number of studies replicated the same technical trading rules applied by (William Brock 1992) on various markets. Almost all the results from these studies supported the application of MA rules on the stock markets.The first objective of this study is to examine the profitability of both MACD trading rules and MA trading rules on Vietnamese market. For MACD trading rules, we emphasize on the performance of MACD-4 which has been applied popularly by practitioners but has not tested by prior academicians and then compare the performances of the four MACD strategies to identify the best one on Vietnamese markets. The next aim of the study is to examine the profitability of a combination trading rule and then compare its performance with those of the individual trading rules, on Vietnamese market.If transaction costs are not taken into account, we find that the MACD-4 trading strategy has significantly predictive ability on the Vietnamese market. The best performance strategy in the Vietnamese market is MACD-2 (applied by(Ulkti and Prodan 2013)), however this strategy may not be effective if it is applied in a high trading cost environment because the numbers of trades created are the highest. Especially, the MACD-3 strategy (applied by (R. Rosillo.2013)) is significantly unpredictable in the Vietnamese market. The figures also show that the profitability of the MA trading rule is better than that of the MACD trading rule, and the predictability of the shorter length MA rule is better than that of the longer one. These results are consistent with those from the previous studies.To minimize the results bias arisen by data snooping problem, we also report the rules on the new fresh sample including Shanghai Stock Exchange (SSE) and Russian RTS index (RTS). Generally speaking, the results in the new fresh sample confirm those in Vietnamese market, except that the MACD-2 strategy is the third rank in the new fresh sample whereas it is the best strategy in the Vietnamese market.