Market Efficiency and Technical Trading: An Empirical Study of MACD and RSI Indicators in Major Asian Stock Indices
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Abstract
This study evaluates the effectiveness of the Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI) indicators in generating profitable trading strategies across ten major Asian stock markets from 2013 to 2023. Despite the Efficient Market Hypothesis (EMH) suggesting that technical analysis is ineffective due to all available information being reflected in asset prices, these indicators remain popular, especially in markets perceived as less efficient. We compare returns from four trading rules—MACD crosses zero, MACD crosses the signal line, RSI crosses the midline, and RSI enters oversold/overbought regions—against a buy-and-hold strategy. The results show that, in most Asian markets, MACD and RSI do not significantly outperform buy-and-hold, supporting weak-form market efficiency. However, the Singapore Exchange exhibits notable outperformance, particularly under MACD and RSI rules involving signal line crossings and extreme RSI levels. Even after optimizing trading rule parameters, these strategies rarely outperform buy-and-hold, with limited success in markets such as Hong Kong, Shenzhen, Shanghai, and Thailand. These findings suggest that while technical analysis may offer advantages in specific contexts, its overall effectiveness is constrained, particularly in more efficient markets. This research contributes to the debate on the viability of technical analysis and highlights the importance of market-specific considerations in applying trading strategies.
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References
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