Market Efficiency and Technical Trading Profitability: A 20-Year Empirical Investigation of the Indonesian Equity Market

Irfan Ullah Stanikzai, Abdullah Khalili

Abstract

This study examines whether selected technical trading strategies outperform the Buy-and-Hold strategy using 20 years of daily data from the Indonesia Stock Exchange within the frameworks of the Efficient Market Hypothesis and technical analysis. Five technical strategies—Simple Moving Average (SMA), Exponential Moving Average (EMA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and and Bollinger Bands—were evaluated against Buy-and-Hold. Daily adjusted closing prices were used to calculate mean daily returns, cumulative returns, final wealth, annualized volatility, and Sharpe ratios. Paired t-tests and Wilcoxon signed-rank tests were employed for parametric and non-parametric comparisons. EMA achieved the highest cumulative return (1404.57%), final wealth (15.05), and Sharpe ratio (0.8435). However, paired t-tests showed that neither EMA nor SMA generated significantly higher mean daily returns than Buy-and-Hold. MACD also showed no significant superiority, while RSI and Bollinger Bands performed significantly worse than the benchmark. Technical trading strategies did not consistently outperform Buy-and-Hold, although EMA demonstrated comparatively strong cumulative and risk-adjusted performance. Investors should not rely solely on technical trading strategies for superior returns. EMA may be considered alongside appropriate risk-management practices, while future studies should test these strategies across different markets and periods. [Penelitian ini menguji apakah strategi perdagangan teknikal tertentu mengungguli strategi beli dan tahan (Buy-and-Hold) dengan menggunakan data harian selama 20 tahun dari Bursa Efek Indonesia, dalam kerangka Hipotesis Pasar Efisien dan analisis teknikal. Lima strategi teknikal, yaitu Simple Moving Average (SMA), Exponential Moving Average (EMA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), dan Bollinger Bands, dibandingkan dengan Buy-and-Hold. Harga penutupan yang telah disesuaikan digunakan untuk menghitung rata-rata imbal hasil harian, imbal hasil kumulatif, kekayaan akhir, volatilitas tahunan, dan rasio Sharpe. Uji t berpasangan dan uji peringkat bertanda Wilcoxon digunakan untuk perbandingan parametrik dan nonparametrik. EMA menghasilkan imbal hasil kumulatif tertinggi (1404,57%), kekayaan akhir (15,05), dan rasio Sharpe (0,8435). Namun, uji t berpasangan menunjukkan bahwa EMA maupun SMA tidak menghasilkan rata-rata imbal hasil harian yang secara signifikan lebih tinggi daripada Buy-and-Hold. MACD juga tidak menunjukkan keunggulan signifikan, sedangkan RSI dan Bollinger Bands berkinerja secara signifikan lebih buruk daripada strategi acuan. Strategi perdagangan teknikal tidak secara konsisten mengungguli Buy-and-Hold, meskipun EMA menunjukkan kinerja kumulatif dan kinerja setelah penyesuaian risiko yang relatif kuat. Investor sebaiknya tidak hanya mengandalkan strategi perdagangan teknikal untuk memperoleh imbal hasil yang lebih tinggi. EMA dapat dipertimbangkan bersama praktik pengelolaan risiko yang tepat, sedangkan penelitian selanjutnya perlu menguji strategi tersebut pada pasar dan periode yang berbeda.]

Source: semanticscholar · PDF

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