• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

If financial markets are efficient why does technical analysis still exist?

Extracts from this document...


If financial markets are efficient why does technical analysis still exist? Introduction The implication of EMH for investment management The underlying assumption behind Technical analysis How do technicians view the market? Any example Critically illustrate whether market efficiency and technical analysis can be mutually exclusive or not Introduction In the project : I will explain If financial markets are efficient why does technical still exist .In the first part I will explained what is Efficiency Market Hypothesis ,introduce three form of EMH and the implication of EMH for investment management. The second part is about Technical analysis in this part I will introduce TA and find out the assumption of TA .The third part I will use two technical indicator apply to 1 year HSI. To find out technical analysis weather can make profit from market. If investor can use Technical Analysis to make profit from market that means market efficiency and technical analysis no mutually exclusive I will explain further in this part. Introduction of EMH The efficient markets hypothesis (EMH), point out that current stock prices fully reflect available information about the value of the firm, therefore investor can not earn excess profits by using this information. There have three versions of the Efficient Market Hypothesis: the weak, semi strong, and strong forms of the hypothesis. These versions differ by their notions of what is meant by the term 'all available information.' ...read more.


Therefore the best portfolio strategic is passive management such as create an index fund, which is a fund designed to following the benchmark index of stock. Technical analysis Technical analysis attempts to use recurring and predictable patterns in stock prices to generate superior investment performance. Technicians believe that whatever the fundamental reason for change in stock price, if the stock price responds slowly enough, the analyst will be able to identify a trend that can be use during the adjustments period. The key to successful technical analysis is slow response of stock prices to fundamental supply and demand factors. Technical analysts study records or charts of past stock prices, hoping to find patterns they can use to make profit. Technicians do not deny the value of fundamental information, but believe that prices only gradually close in on intrinsic value. As fundamentals shift, astute traders can exploit the adjustment to a new equilibrium. Much of technical analysis seeks to uncover trends in market prices. This is in effect a search for momentum. Momentum can be absolute, in which case one searches for upward price trends, or relative, in which case the analyst looks to invest in one sector over another. Relative strength statistics are designed to uncover these perceived opportunity Technical analysis also uses volume data and sentiment indicators. These are broadly consistent with several behavioral models of investor activity. ...read more.


Take 14 days for estimate the stock prices movement. RSI is between 0 to 100 .If lower than 30 is oversold and higher than 70 is overbought. For example the stock price is go up very fast then the index also go up very fast to 70or above. If the index is up to 70 above that means the stock is overbought then the price may be drop down at soon. If you buy a stock at that time you are very dangerous. Conversely, the stock is oversold. The stock prices may be rebound soon. You should buy stock at this moment. This chart I apply Bollinger Bands to 1 year HSI .We can see that when HSI .If the price is touching the top of Bollinger Bands. The price will drop and if the price is touching the lowest of Bollinger Bands that means the stock price is too low .The price will rebound .Which mean that in Hong Kong market we can use this technical indicator to actively management the portfolio such as sell at top of Bollinger Bands and buy at lowest of Bollinger Bands. This chart I apply Relative Strength Index to 1 year HSI According the chart we can see that when HIS is overbought then the price may be drop down at soon. Conversely, the HSI is oversold. The stock prices may be rebound soon. Therefore we can buy at oversold and sell at overbought to earn the money. Reference http://www.e-m-h.org/ClJM.pdf http://www.investopedia.com/articles/02/101502.asp#axzz1aGBksBeO http://www.investopedia.com/terms/e/efficientmarkethypothesis.asp#axzz1aGBksBeO http://www.aastocks.com/tc/stock/DetailChart.aspx?Symbol=110000 http://economics.stanford.edu/files/Theses/Theses_2002/Wong.pdf ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Finance essays

  1. Merchant Banking-100 marks project

    He may hold the securities of clients portfolio accounts in his own name on behalf of the clients only if the contract so provides and in such cases he shall send the report to the client indicating the securities held by him in the above manner.

  2. This group assignment of Financial Management will assess the positions financial performances for six ...

    Hup Seng achieved high PE ratios in year 2005, 2006, and 2008. Sharp fall of PE ratio happened in year 2009. However, this is a far too simplistic way of viewing the P/E because it fails to take into account the company's growth prospects.

  1. Project on portfolio management in Mutual Funds. The analysis and advice presented in ...

    6 .It can merge into another fund or could be acquired by another fund house. Performance measures: Equity funds: the performance of equity funds can be measured on the basis of: NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share

  2. Financial Analysis on Coles Myer & Woolworths

    2003). This ratio indicates how much profit one unit asset can generate and how profitable company is as a whole. WOW and CML are both in the increasing trend, 0.17 and 0.1 respectively in 2005. In term of this ratio, it showed that WOW is more profitable than CML

  1. Financial Analysis

    member/Chief Accountant/Deputy CEO 4 Nguyen Manh Son Board member/Deputy CEO 5 Nguyen Thanh Binh Board member/Deputy CEO 6 Ha Phuoc Loc Deputy CEO 7 Pham Quang Vinh Deputy CEO 8 Nguyen Van Hieu Head of Control Committee 2.1.3 Ownership structure: Ownership structure Number of share % State - VINACHEM 15,538,470

  2. Corporate Analysis - Vodafone

    A balance sheet is at one point in time and as such may not reflect the normal position of the business. * Value of assets are only used but not the value of the business, i.e. goodwill and other tangible assets are not used. (McLaney, 2006) (Brigham & Houston, 2004)

  1. This essay critically assesses the efficient market hypothesis (EMH) by examining empirical evidence that ...

    Their second tests used contigency tables to test for performance persistence. Their methodology is thus well prepared and leaves little to chance. Regression analysis showed significant evidence of persistence in equity when it was defined as information ratios only. None of the contingency tables showed evidence of persistence for equity.

  2. Business statistics - Data Analysis

    = 29.5962 + 2.0076 27.5885 <= µ < = 31.6037 95% of the men get married for the first time between 27.5885 years old and 31.6037 years old. h) Given that the sample size is greater than 50, now assume that you can estimate the population standard deviation, , with the sample standard deviation, s.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work