Trading rules and excess returns: evidence from Turkey

Abstract

Purpose This paper aims to investigate popular technical trading rules (TTRs) applied to the FTSE Turkish all-cap and small-cap indexes from September 23, 2003 to August 9, 2019 to determine rules that produce net excess returns over the Buy-and-Hold strategy (B&H). Design/methodology/approach Five TTRs, namely, simple moving average, relative strength index, moving average convergence divergence, momentum, and rate of change, are applied, singly (one indicator) and in combination (two indicators) for multiple time periods. Findings For the small-cap index, some TTRs – including the famous Golden Cross, when the 50-day moving average rises above 200-day moving average – produced net annual excess returns (NAERs) over the B&H strategy, for the entire period and each sub-period, after accounting for risk and transaction costs. Results were mixed for the large-cap index. The results support Cakici and Topyan (2013). Research limitations/implications This study investigates several indicators, but future studies should examine others, especially based on volume and price. Practical implications Investors in the FTSE Turkish small-cap index may use some trading rules to earn NAERs over the B&H strategy. Originality/value This research is important because it addresses a gap in the research by examining numerous TTRs in the Turkish stock market. Studies of TTRs in Turkey are scarce.