| dc.description.abstract | echnical Analysis, a tool used for security analysis and market timing, is based on analysis
of past price and volume data to predict future stock movements. The validity of this
technique is directly questioned by Efficient Market Hypothesis, which provides, that at all
times prices reflects all available past and present information about a security and thus
argues that technical analysis cannot generate a greater risk adjusted return as compared to
a buy and hold strategy. In this paper, we analyze 1) Validity of Random Walk Hypothesis in
the Indian Market 2) Empirical Risk-Adjusted Returns generated by various technical analysis
strategies over August 2014 to July 2015 3) Conditions in which Technical Analysis and
Market efficiency ideas reconcile. We find that because of low liquidity, the random walk
hypothesis is rejected in Indian Small-Cap market which empirically exhibits positive
autocorrelation in returns. Additionally, we find evidence that Momentum based
technical trading strategies did generate greater risk-adjusted return as compared to a
buy and hold strategy. Lastly, we find that academic literature establishes that
information doesn’t get adjusted immediately in the prices as argued by proponents of
Market efficiency. Thus technical analysis can be useful in identifying inflow of meaningful
information in the market; which gets reflected in our finding of the validity of
momentum based technical analysis strategies too. | en_US |
