Applying Technical Trading Rules to Evaluate Weak-form Efficiency on the Swedish Stock Market

Under the theory of weak-form market efficiency, present day stock prices reflect all historical data. As a result, the use of technical analysis should not be able to outperform a buy-and-hold strategy of a general market index. This study examines weak-form efficiency on the Swedish stock market by applying technical trading rules to 33 years of historical price data of the OMXS30 index. Variations of moving averages, relative strength index oscillators and bollinger bands have been constructed, applied and tested for significance against the buy-and-hold strategy of the index. After conducting these tests, no single technical rule significantly outperforms the market, even when not taking transaction costs into consideration. The top performing rules have then been reapplied to 1000 Monte Carlo simulations of the underlying index. After realising these simulations, the probability of identifying a significantly profitable rule is approximately 0,12%. However, occasionally finding significantly profitable rules is, due to its irregular and anomalous nature, seemingly a result of mere data snooping bias. Altogether, weak-form efficiency cannot be dismissed on the Swedish stock market