Vaasan yliopiston opinnäytteet

Kauppatieteellinen tiedekunta, 2012

Gröhn, Olli


Ohjaaja/Valvoja (DI):
Sami Vähämaa
Kauppatieteiden maisteri
Laskentatoimi ja rahoitus
Rahoituksen linja
Master's Degree Programme in Finance
Tutkielman kieli:
During the recent years financial markets have been going through one of the most challenging periods in history as first USA and now Europe is struggling with a damaging credit crisis. As crisis is not calming the market is very volatile and technical analysis has gained more ground. This study analyses the performance of technical trading rules in the short term interest rate futures market. The purpose of this study is to examine if these trading rules can generate excess returns in relation to Buy-and-hold rule and if efficient market hypothesis can be criticized due to market inefficiencies.

The weak-form of the efficient market hypothesis states that all historical trading data is reflected in the asset prices. This is challenged by Relative Strength Index, its new modifications and Moving Average rules as they use historical trading data to try to yield higher returns than what is attained by buying and holding. As Relative Strength Index in this study is based on the original rule of 14-day periods a new modification of it, DRSI, applies two different length indices with influences from Moving Average rule. There are three versions of DRSI rule used in this study with some differences in an optimization process. In this study 1-50 method of Moving Average rule is used.

Data of this study consists of 132 short term interest rate futures denominated in seven currencies: USD, EUR, GBP, JPY, CHF, NZD and MYR. The futures data gathered from January 1st 2000 to July 31st 2009 contains total amount of 149,212 observations after filtration process. As previous studies have shown there is a difference in profitability between developed and developing market while technical trading rules are used and therefore also in this study data is divided into two periods, illiquid and liquid.

The findings of this study show that trading rules often generate higher risk adjusted returns but they cannot consistently generate excess returns versus Buy-and-hold method. However, it is shown that the MYR denominated market is not efficient and Moving Average and DRSI common optimization rules yield significant excess returns. In addition it was found that optimization has a huge impact on returns of trading rules.
technical analysis, interest rate futures, relative strength index, moving average, efficient market hypothesis
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