Profiteering from the Dot-com Bubble, Sub-Prime Crisis and Asian Financial Crisis

Thumbnail Image
Official URL
Full text at PDC
Publication Date
Advisors (or tutors)
Journal Title
Journal ISSN
Volume Title
Google Scholar
Research Projects
Organizational Units
Journal Issue
This paper explores the characteristics associated with the formation of bubbles that occurred in the Hong Kong stock market in 1997 and 2007, as well as the 2000 dot-com bubble of Nasdaq. It examines the profitability of Technical Analysis (TA) strategies generating buy and sell signals with knowing and without trading rules. The empirical results show that by applying long and short strategies during the bubble formation and short strategies after the bubble burst, it not only produces returns that are significantly greater than buy and hold strategies, but also produces greater wealth compared with TA strategies without trading rules. We conclude these bubble detection signals help investors generate greater wealth from applying appropriate long and short Moving Average (MA) strategies.
Unesco subjects
Alexander, S., 1961, Price movements in speculative markets: Trends or random walks, Industrial Management Review, 2, 7-26. Alexander, S., 1964, Price movements in speculative markets: Trends or random walks?, in Cootner, P. (Ed.), The Random Character of Stock Market Prices, vol. 2, MIT Press, Cambridge, MA. Allen, H. and Taylor, M., 1990, Charts, noise and fundamentals in the London foreign exchange market, Economic Journal, 100, 49-59. Balvers, R.J., Cosimano, T.F. and McDonald, B., 1990, Predicting stock returns in an efficient market, Journal of Finance, 55, 1109-1128. Bessembinder, H. and Chan, K., 1998, Market efficiency and the returns to technical analysis, Financial Management, 27 (2), 5-17. Box, G.P. and Jenkins, G.M., 1976, Time Series Analysis, Forecasting and Control. 2nd edition, Prentice-Hall. Brealey, R., 1969, An introduction of Risk and Return from Common Stocks, MIT Press, Cambridge, MA. Breen, W., Glosten, L.R. and Jagannathan, R., 1990, Predictable variations in stock index returns, Journal of Finance, 44, 1177-1189. Brock, W., Lakonishok, J. and LeBaron, B., 1992, Simple technical trading rules and the stochastic properties of stock returns, Journal of Finance, 47, 1731-1764. Campbell, J.Y., 1987, Stock returns and term structure, Journal of Financial Economics, 18, 373-399. Campbell, J.Y. and Shiller, R.J., 1988a, The dividend-price ratio and expectations of future dividends and discount factors, Review of Financial Studies, 1, 195-228. Campbell, J.Y. and Shiller, R.J., 1988b, Stock prices, earnings and expected dividends, Journal of Finance, 43, 661-676. Chong, T.L. and Ng, W.K., 2008, Technical analysis and the London stock exchange: Testing the MACD and RSI rules using the FT30, Applied Economics Letters, 15, 2008, 1111-1114. Conrad, J. and Kaul, G., 1988, Time-varying expected returns, Journal of Business, 61, 409-425. Fama, E.F., 1965, The behavior of stock-market prices, Journal of Business, 38(1), 34-105. Fama, E.F., 1970, Efficient capital markets: A review of theory and empirical work, Journal of Finance, 25, 383-417. Fama E.F. and Blume, M., 1966, Filter rules and stock market trading profits, Journal of Business, Supplement, 39, 226-241. Fama, E. and French, K., 1988, Dividend yields and expected stock returns, Journal of Financial Economics, 22, 3-25. Fama, E.F. and French, K., 1989, Business conditions and expected returns on stocks and bonds, Journal of Financial Economics, 25, 23-49. Fisher K.L. and Statman, M., 2003, Consumer confidence and stock returns, Journal of Portfolio Management, 30(1), 115-127. Fong, W.M. and Yong, L.H.M., 2005, Chasing trends: Recursive moving average rules and internet stocks, Journal of Empirical Finance, 12(1), 43-76. Frankel. J. and Froot, K. 1990, The rationality of the foreign exchange rate: Chartists, Fundamentalists, and trading in the foreign exchange rate, American Economic Review, 80, 181-185. Friedman, M., 1953, The case for flexible exchange rate, in Essays in Positive Economics, University of Chicago Press, Chicago. Hall, P., 1992, The Bootstrap and Edgeworth Expansion, New York, Springer-Verlag. Harvey, C., 1995a, The cross-section of volatility and autocorrelation in emerging markets, Finance Markets and Portfolio Management, 9, 12-34. Harvey C., 1995b, Predictable risk and returns in emerging markets, Review of Financial Studies, 773-816. Hudson, R., Dempsey, M. and Keasey, K., 1996, A note on the weak form efficiency of capital markets: The application of simple technical trading rules to UK stock prices - 1935 to 1994, Journal of Banking and Finance, 20, 1121-1132. Isakov, D. and Hollistein, M., 1998, Application of simple technical trading rules to Swiss stock prices: Is it profitable?, Working paper, HEC, University of Geneva, Geneva. Jensen, M.C. and Benington, G.A., 1970, Random walks and technical theories: Some additional evidence, Journal of Finance, 25, 469-482. Kung, J.J. and Wong, W.K., 2009a, Efficiency of the Taiwan stock market, Japanese Economic Review, 60(3), 389-394. Kung, J.J. and Wong, W.K., 2009b, Profitability of technical analysis in Singapore stock market: Before and after the Asian financial crisis, Journal of Economic Integration, 24(1), 133-150. Lam, V.W.S., Chong, T.T.L. and Wong, W.K., 2007, Profitability of intraday and interday momentum strategies, Applied Economic Letters, 14, 1103–1108. Leung, M.J. and Chong, T.T.L., 2003, An empirical comparison of moving average envelopes and Bollinger bands, Applied Economics Letters, 10, 339-341. Lo, A.W., Mamaysky H. and Wang, J., 2000, Foundations of technical analysis: Computational algorithms, statistical inference, and empirical implementation, Journal of Finance, 55, 1705-1764. Lo, A. and MacKinlay, C., 1990, When Are contrarian profits due to stock market overreaction?, Review of Financial Studies, 3, 175–205. Mills, T.C., 1997, Technical analysis and the London Stock Exchange: Testing trading rules using the FT30, International Journal of Finance and Economics, 2, 319-331. Mokhtar, S.H., Nassir A.Md., and Hassan, T., 2006, Detecting rational speculative bubbles in the Malaysian Stock Market, International Research Journal of Finance and Economics, 6, 102-115. Neftci, S.N., 1991, Naïve trading rules in financial markets and Wiener- Kolmogorov prediction theory: A study of technical analysis, Journal of Business, 64, 549-571. Ratner, M. and Leal, R.P.C., 1999, Tests of technical trading strategies in the emerging equity markets of Latin America and Asia, Journal of Banking and Finance, 23, 1887-1905. Ready, M., 1997, Pitfalls from technical trading rules: Methods and results, Journal of Financial and Quantitative Analysis, 23, 285-300. Roberts, H., 1959, Stock market patterns and financial analysis: Methodological suggestions, Journal of Finance, 1-10. Schwager, J., 1995, Schwager on Futures: Technical Analysis, Wiley. Sweeney, R., 1988, Some new filter rule tests: Methods and results, Journal of Financial and Quantitative Analysis, 23, 285-300. Wong W.K., Chew, B.K. and Sikorski, D., 2001, Can P/E ratio and bond yield be used to beat stock markets?, Multinational Finance Journal, 5, 59-86. Wong, W.K., Du, J. and Chong, T.T.L., 2005, Do the technical indicators reward Chartists? A study on the stock markets of China, Hong Kong and Taiwan, Review of Applied Economics, 1(2), 183-205. Wong W.K., Manzur, M., and Chew, B.K., 2003, How rewarding is technical analysis? Evidence from Singapore stock market, Applied Financial Economics, 13(7), 543-551. Wong, W.K. and McAleer, M., 2009, Mapping the Presidential election cycle in US stock markets, Mathematics and Computers in Simulation, 79(11), 3267-3277.