Variable Moving Average Test on Weekly Stocks of Indian Markets

Abstract

In the financial literature Efficient Market Hypothesis (EMH) has been one of the dominant topics. An implication of weak-form of efficiency / random walk is that the trading rules will not generate economic profits. The purpose of this study is to analyze results of application of variable moving average (VMA) test on weekly stock prices of Indian Markets, thus investigating its efficiency at the weak form level (Fama,1970). Three different strategies viz. Buy, Sell and Buy-Sell of VMA trading rule have been tested on weekly stock prices on 200 stocks from Indian Stock markets over different time periods to test Weak Form of Efficient Market Hypothesis (WFEMH). The results from the VMA trading rule tests indicated that the technical trading rules do not yield statistically significant forecasting power. It means that forecasting of returns based on trading rules cannot be employed to earn abnormal returns.