Testing Market Efficiency by using Technical Analysis and Evaluating Performance of Technical indicators

Abstract

The objective of this study is to test the efficiency of the market by using technical analysis and evaluating the performance of the technical indicators. The technical analysis tools which we apply are Exponential Moving Average (EMA), Relative Strength Index (RSI) and Money Flow Index (MFI) were used to find buying and selling signals. To test the efficiency of the market, we compared the investment signaling from technical analysis and normal investment (Buy and Hold). This study use closed price and Volume of Stock Exchange Thailand Index (SET50 Index) from 3 January 2007 to 31 May 2020. Comparison the efficiency of technical analysis tools from the excess return. From this study we found that EMA is the best Indicators on giving the highest excess returns. And for using Sharpe Ratio as the efficiency of the investment, using MFI with EMA give the best performance. After testing the efficiency of the market at 99% confidence level, technical analysis tools couldn’t generate average annual return better than Buy and hold Investment. From this result, we can imply that The Stock Exchange of Thailand (SET50 Index) has market efficiency.