EVALUATION OF THE TRADING RANGE BREAK

Abstract

The efficient markets hypothesis (EMH), popularly known as the Random Walk Theory, is the proposition that current stock prices fully reflect available information about the value of the firm, and there is no way to earn excess profits, (more than the market over all), by using all available information. It deals with one of the most fundamental and exciting issues in finance- why prices change in security markets and how those changes take place. It has very important implications for investors as well as for financial managers. The first time the term "efficient market" was in a 1965 paper by E.F. Fama who said that in an efficient market, on the average, competition will cause the full effects ofnew information on intrinsic values to be reflected "instantaneously " in actual prices. The objective of this study is to determine the level of precision and reliability of the Trading Range Break as a trading strategy This approach is conducted so as to examine and evaluate the effectiveness of the Trading Range Break as an indicator of the weak Efficient Hypothesis, as derived by Fama(\965) No studies were conducted on the TRB in the context of Singapore Stock Exchange. The formula used is the Mean Return, both adjusted and unadjusted, for market trends. Both methodologies helped to create a clearer, and at the same time, distinct picture of the efficiency of the market A previous study completed by Adrian's (Efficiency Testing of the Efficient Market in the Weak Form) (2001) concluded that the Singapore Property Company Indices do exhibit some characteristics of Weak Inefficiency, especially when the holding period 9Buy- Hold) strategy is between lday and lOdays. This research aims to reinforce the stand of such empirical results. It was shown from this study that the opposite occurs. Instead of the time period shown above, 60days exhibited the greatest turnover. Via such an approach, it shows that the TRB does generate abnormal returns in the short run In addition, it shows that the TRB is effective and a useful gauge to measure the level of efficiency of the Singapore Stock Exchange.