Market Efficiency and Technical Analysis in Romania

Abstract

In this paper we make a detail evaluation of stock market efficiency in Romania. First, we employ 686,243 trading models derived from 44 technical analysis indicators and determine that significant inefficiencies exist for stock prices in this country. The time varying nature of these points out that market efficiency is not improving over time, but instead fluctuates in the way consistent to the Adaptive Market Hypothesis. We show that investor success does not depend on the target investment asset, slightly depends on specific prediction models and heavily depend on the size of the implemented rule universe. Next, we focus on finding out what are the determining factors for market efficiency. Contrary to what one might expect, we find that market liquidity has an almost insignificant impact on efficiency. The main determining factor for market efficiency in Romania is price momentum, and argues that the detected anomalies are due to investor behavioral biases.