This book is a study of the profitability of technical and fundamental trading rules in emerging financial markets (stock and foreign exchange markets) using Kuwait as a case study. The ultimate objective of the study is to demonstrate that financial volatility can be attributed to the heterogeneity of traders with respect to the trading strategies they use. A number of trading strategies are considered, including those based on expectation formation mechanisms, quantitative technical indicators, filter rules, moving average rules, fundamental trading rules, and the price-volume relation. The profitability of each trading rule is then compared to the profitability of a passive buy and hold strategy. Based on the profitability of these rules, weights are assigned to each strategy to simulate financial prices (two stock prices and two exchange rates). By comparing the statistical distributions of the actual and simulated financial prices, it is shown that there is ample evidence indicating the effect of heterogeneity on volatility. The study also presents some evidence of the roles played by technicians and fundamentalists in financial price determination.
ABOUT THE AUTHOR A. Moosa Imad
Imad Moosa is currently a Professor of Finance at Monash University, Melbourne (Australia). He has held positions at La Trobe University, Gulf University for Science and Technology and the University of Sheffield. Before turning academic in 1991, Dr. Moosa was a professional economist, an investment banker and a financial journalist. He was also an economist at the International Monetary Fund, Washington, DC. He has published nine books and over 150 papers in Finance, Macroeconomics and Applied Econometrics. His work has appeared in the Journal of Futures Markets, Journal of Applied Econometrics, Southern Economic Journal, IMF Staff Papers, Journal of Development Economics, Journal of Comparative Economics, Canadian Journal of Economics, American Journal of Agricultural Economics, Quantitative Finance and other refereed journals. His published books cover a range of topics, including exchange rate forecasting, foreign direct investment, international financial operations, exchange rate regime choice and operational risk. His research interests are international finance, macroeconomics, financial markets and the financial aspects of economic development.
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