An Empirical Study On The Effectiveness Of Technical Analysis On China Futures Market

The technical analysis has a long history but still raise a lot of controversies in its various principles and application. By Self-correlogram Test, ADF Test and Variance Ratio Test, this paper makes a lot of empirical tests on the price series of four kinds of commodity futures which represent China futures market and reaches a conclusion that price series of those futures are not a process of Random Walk. Furthermore, through GARCH (1, 1) model, which is always used on the test of fluctuation of financial time series, and Granger Causality Test, this paper proves that there does exist some relation between price and trade quantity on the futures market in China. With these two conclusions made from different empirical tests, the technical analysis with its features of using historical price and trade quantity data to forecast the future price trend is given a scientific foundation in its wide use on China futures market. From this way, we can see that the technical analysis methods may somewhat be effective tools for the investors on China futures. Therefore, we make a further study on the effectiveness of the technical analysis by directly testing the Graphic Patterns theory and technical indicators. We first mathematically define the main patterns and indicators which are widely used nowadays in the futures market, make judgement on its formation which may constitute signals to instruct investors, and then calculate the yield that those signals may bring. The paper raises its final comment based on its numerous and complicated empirical tests that some technical analysis methods do appear quite effective in China futures markets now. Finally, this paper gives some advice for the futures investors on the application of the technical analysis which is formed during the study on the four kinds of commodities futures markets.