Research Information System
Applied Financial Economics, vol.7, no.4, pp.361-365, 1997 (Peer-Reviewed Journal)
Abstract
In spite of the
fact that there is a widespread belief that stock markets are weak-form
efficient, technical analysis is a pervasive activity in such markets. In this paper, we examine the extent to which
this apparent paradox can be explained by expanding the assumed information set
used by analysts to include the past sequence of volume in addition to the past
sequence of prices. Using a unique data
set from an emerging market we demonstrate that for a number of companies in
the sample returns appear to conform to the weak-form version of the efficient
markets hypothesis. However, when
returns are conditioned on past levels of volume, current returns on over half
of these companies exhibit predictability.
This is particularly true for companies which have low trading volumes.