تجزیه و تحلیل فنی و رفتارهای ارسال سفارش: شواهدی از بازار نوظهور

The usefulness of technical analyses has never reached a consensus. Unlike most literature studying stock price behaviors surrounding the presence of technical trading signals, this paper examines the heterogeneity in order submission behaviors of investors in the Taiwan Stock Exchange. Our results show that professional institutional investors, particularly foreign investors, behave in a manner consistent with the suggested strategy by the KD trading rule. Namely, after the presence of buy (sell) signals, they intend to buy (sell) the stocks. Conversely, individual investors, acting like liquidity suppliers, tend to net sell (buy) those stocks.

Academics have long been skeptical about the usefulness of technical analysis, despite its widespread acceptance and adoption by practitioners. Traditional wisdom (e.g., Alexander, 1961, Fama and Blume, 1966 and Jensen and Benington, 1970) suggests that technical trading rules imply bounded market rationality and are in conflict with market efficiency.3 Chartists believe that chart patterns in stock prices tend to repeat themselves and, thus, predict future returns. However, there is no credible explanation as to why these patterns should repeat (Jegadeesh, 2000). Lo and MacKinlay, 1988 and Lo and MacKinlay, 1999 argue that stock prices do not entirely follow a random walk and some components of stock returns are still predictable, giving rise to renewed interest in technical analyses. Recent literature shows evidence that simple technical trading rules exhibit some forecasting power for future returns and are thus profitable,4 presenting a challenge to proponents of efficient markets. While empirical evidence of the usefulness of technical analysis and the associated price behaviors keeps piling up, little is known about the price-formation process and its driving forces surrounding the presence of trading signals. Unlike mostly prior research, this paper does not intend to join the debate on the market efficiency issue (e.g., Buguk and Brorsen, 2003 and Hoque et al., 2007). Instead, from a behavioral angle, the goal of this paper is to explore order submission strategies among different investor groups surrounding the presence of effective trading signals. In other words, given distinguishable price behaviors associated with the selected effective trading rules, this paper pays attention to investor behaviors that drive stock demand and supply and ultimately stock price behaviors in the Taiwan Stock Exchange (TSE).5 Regarded as a seemingly viable approach to selecting stocks, technical trading in Taiwan draws attention from market practitioners. To encourage trading, brokerage firms circulate charts and technical commentaries to their clients, without extra charge, through on-line trading software with which their clients place limit orders. This paper selects two technical rules, the KD (alternatively called the Stochastic or Momentum Oscillator) and the MA (Moving Average) rules are considered by practitioners be the one of the most, if not the most, simple and popular of the chart patterns. The initiation of trading signals by a KD (MA) rule relies upon the intersections of two relevant curves — indicators K and D (the moving averages with different time horizons). The standard trading strategy suggests that investors buy (sell) a stock immediately after a buy (sell) signal for the stock is initiated. Mostly Taiwanese trading houses are equipped with the devices that automatically perform both kinds of analyses and notify their customers, once trading signals are initiated. How different types of investors react to the signals reflects their beliefs in those technical trading rules. Institutional and individual investors are generally believed to be informed and noise traders, respectively (Chakravarty and McConnell, 1997, Chakravarty and McConnell, 1999, Koski and Scruggs, 1998, Lee et al., 2004, Griffin et al., 2003 and Barber and Odean, 2008). Even sub-rational traders could affect stock price systematically (Barber et al., 2009, Hvidkjaer, 2008, Kaniel et al., 2008, Kumar and Lee, 2006 and Richards, 2005). The strategic roles of different investor groups could be instructive and provide guidance on the potential worthiness of these signals.6 To make this research feasible, we employ trade and order data for the TSE that can identify investor types, including foreign investors, mutual funds, securities dealers, corporate institutions, and individual investors. Thus, our order data help us undoubtedly identify the ex-ante order submission behaviors of investors and their strategic roles — who trade the stocks surrounding the initiation of trading signals and how they trade, in addition to their ex-post positions ( Ahn, Cai, & Cheung, 2005). To our knowledge, this paper is among the first to examine the behavior issue regarding technical analysis, using such voluminous and comprehensive intraday data. 7 Painting a different picture of technical analyses, we show that, first, stock prices indeed reverse around the presence of KD signals, while the price pattern associated with the MA rule is less evident, which are only the observations in this paper comparable to those in prior research. Second, investors' order submission behaviors are indeed relevant to the presence of trading signals. From the angle of aggressive limit orders, evidence shows that foreign investors trade stocks more actively around KD signals and their strategic behavior coincides with the suggested trading strategy. From the angle of patient limit orders, individual investors well serve as liquidity suppliers or tend to net sell (buy) the stocks initiating buy (sell) signals at highs (lows), whereas professional institutional investors try to buy (sell) them at highs (lows). Our results are robust to controlling for firm size, market condition, trading volume, and the feedback trading tendency. The remainder of this paper is organized as follows: Section 2 introduces the selected technical trading rules. Section 3 describes the data sources and the applied methodologies. Section 4 analyzes the price behaviors of the stocks surrounding the presence of trading signals by the selected trading rules and the order submission behavior of each investor group and their strategic roles. Finally, Section 5 concludes this paper.

Technical analysis has been a part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis (Lo, Mamaysky, & Wang, 2000). Can investors profit through technical trading rules? The answer from academics is apparently not as straightforward as the question itself. In fact, the ongoing debate over the usefulness of technical analyses has never come close to a consensus. Viewing this issue from a new angle, this paper explores order submission behaviors among five investor groups (foreign investors, mutual funds, securities dealers, corporate institutions, and individual investors) surrounding the presence of trading signals. It is particularly of interest whether the order submission behaviors of institutional investors (often regarded as informed traders) and individual investors (often regarded as noise traders) match the strategies suggested by the selected technical trading rules. Our results show that, first, regarding price behavior of the selected stocks, stock prices reverse after the presence of buy (sell) signals, and the MA rule plays a much smaller role than the KD rule. Second, foreign investors and individual investors are the most influential investors by whom the trading and order imbalances are generally far larger than other investor groups. Third, the order submission behaviors of five investor groups indeed change around the presence of KD signals. After the presence of KD buys and sells, no matter from the viewpoint of marketable or nonmarketable limit orders, the order submission behaviors of professional institutional investors (particularly foreign investors) are compatible with the suggested strategy by the KD rule. That is, they try to buy (sell) those stocks initiating buy (sell) signals. On the other hand, behaving in stark contrast with professional institutional investors, corporate institutions and patient individual investors have a tendency to net sell (buy) the stocks initiating buy (sell) trading signals. It possibly follows that KD signals may have fundamental implications, in view of the prevailing recognition of institutional investors as informed traders. We contribute to the current literature on technical analysis in two aspects. First, examining the presence of technical trading from a new angle, this paper provides practitioners and economists with a fresh insight into not only the price behaviors of stocks initiating trading signals but also the order submission behaviors among various investor groups reacting to these trading signals. Second, through analyses using comprehensive limit order data, the observed order submission behaviors among various investor groups could advance our understanding of the effectiveness of technical trading rules and price formation under various market structures.