Profitability of Trading Rules in MENA Stock Markets

Technical trading rules have been used in financial markets in order to examine their ability to yield a superior return. In the early empirical literature, a body of studies showed that trading rules do not outperform a simple buy and hold strategy. However, more recent research finds evidence that supports technical trading rules. This study examines the profitability of trading rules in 14 Middle East and North African (MENA) markets. The trading rules that used are: moving average trading rules (MA), trading range breakout (TRB) trading rules, filter trading rules, channel trading rules, Bollinger band (BB) trading rules and moving average coverage divergence (MACD) trading rules. The markets used in this work include the Bahrain stock market, the Jordan stock market, the Kuwait stock market, the Lebanon stock market, the Maltese stock market, the Morocco stock market, the Oman stock market, the Qatar stock market, the Saudi Arabian stock market, the Tunisia stock market, the Turkey stock market, the United Arab Emirates stock markets, the Cyprus stock market and the Egypt stock market. Our results indicate that according to mean return criterion, the best simple moving average (SMA), exponential moving average (EMA), triangular moving average (TMA), trading range breakout (TRB), filter and moving average coverage divergence (MACD) trading rules are for Turkey market. Malta, Bahrain and Oman have the highest percentage of rules that generate positive mean return. In terms of the Sharpe ratio, the best trading rules according to TMA, SMA, filter and channel trading rules are for Turkey market. Furthermore, Turkey has the highest percentage of rules that have a positive Sharpe ratio followed by Cyprus and Egypt. Controlling for data snooping, the results show that the number of trading rules that generate positive return comparing with buy and hold strategy has been reduced but there are still a large number of profitable rules through some markets.