Original scientific paper
https://doi.org/10.1080/1331677X.2021.1974921
Are technical indicators helpful to investors in china’s stock market? A study based on some distribution forecast models and their combinations
Yanyun Yao
Shangzhen Cai
Huimin Wang
Abstract
Can investors use technical analysis to generate positive riskadjusted returns by observing historical transaction data? The
study investigates whether technical indicators (TIs) are beneficial
to the returns and risk management of China’s stock market
investors. It is conducted from the perspective of a distribution
forecast rather than a traditional point forecast. The study investigates the TIs’ predictability on the distribution of returns. It also
examines the TIs’ impact on risk management. A high-dimensional-same-frequency information distribution forecasting model,
the LASSO-EGARCH model, is built. The LASSO regression’s results
show that the TIs have limited ‘explanatory power’ for the return
prediction. However, the adaptive moving average and turnover
rate show significant and robust effects. The statistical evaluation
and economic evaluation show that the TIs information’s integration cannot improve the direction forecast’s accuracy, nor does it
have excess profitability. However, it enables the return distribution to have a better calibration. The above conclusion reveals
that the usefulness of the analysis for China’s stock market lies in
its risk management when the stock price plunges, rather than in
excess profits. This may provide a reference for investors who prefer the TIs’ analysis.
Keywords
Technical indicator analysis; distribution forecast; LASSO; GARCH; risk management
Hrčak ID:
302472
URI
Publication date:
31.3.2023.
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