Random walk test and the application of technical trading rules: some evidence from Malaysia

Abstract

This paper examines the random walk and predictive ability of fixed and variable- moving average rules on the Kuala Lumpur Composite Index over the period of January 1977 to December 1999. The gap between these two areas is filled by the applications of both the variance ratio test and the moving average rules. The findings of the paper contribute to a more comprehensive understanding of the Malaysian equity market and are of great value to investors. The variance ratio results suggest that the Malaysian equity market does not follow a random walk. Additionally, the trading rules examined are technically attractive even in the presence of transaction costs. We find that moving average length of sixty days outperformed the other levels of length studied.