Fundamental Analysis VS Technical analysis: The Comparison of Two Analysis in Malaysia Stock Market
This study is conducted to analyse the credibility of the fundamental analysis and technical analysis on predicting the stock return and compare both models to determine which model is more credible to be used as a good trading strategy by investors. The study is based on 80 companies selected from Bursa Malaysia in the food manufacturing industry in the main market from the year of 2012 to 2016. The stock return is used to measure whether both analyses are able to forecast and generate the positive return. Net profit margin, price earnings ratio and total asset turnover are used as fundamental indicators while moving average convergence divergence is used as technical analysis indicators. In order to test the significance of both model on stock return, panel regression models are applied in this study. The result shows that although both model can be used to generate positive return, technical analysis did not outperform fundamental analysis in the food manufacturing industry in Bursa Malaysia.
Abarbanell, J.S., Bushee, B.J. (1997). Fundamental analysis, future earnings and stock price. Journal of Accounting Research, 35(1), 1-24.
Abarbanell, J.S., Bushee, B.J. (1998). Abnormal returns to Fundamental analysis strategy. The Accounting Review, 73(1), 19-45.
Abbasi, E. & Pagghe, M.A. (2013). The relationship between inflation, price-earnings ratio (P/E) and price behavior of Stock Tehran Stock Exchange. International Research Journal of Management Science, 1(4), 98-104.
Ahmed, P., Beck, K. & Goldreyer, E. (2000). Can moving average technical trading strategies help in volatile and declining markets? A study of some emerging Asian markets. Managerial Finance, 26(6), 49-62.
Al-Abdulqader, K.A., Hannah, G. & Power, D.M. (2007). The appraisal of ordinary shares by Saudi investors. Research in International Business and Finance, 21, 69-86.
Alexakis, C., Theophano, P., & Poshakwale, S. (2010). Predictability of Stock Returns using Financial Statement Information: Evidence on Semi-Strong Efficiency of Emerging Greek Stock Market. Applied Financial Economics, 20 (16), 1321- 1326.
Allozi, N.M. & Obeidat, G. S. (2016). The relationship between stock return and financial indicators (Profitability, Leverage): An empirical study on manufacturing companies listed in Amman Stock Exchange. Journal of Social Science, 5(3), 411- 424.
Almumani, M.A (2014) Determinants of equity share price of the listed banks in Amman stockexchange: Quantitative Approach. International Journal of Business and Social Science, 5(1), 91-104.
Anwaar, M. (2016). Impact of firms' performance on stock returns. (Evidence from listed companies of FTSE Index London, UK). Global Journal of Management and Business Research, 16(1), 31-39.
Asif, M., Arif, K., Akbar, W. (2016). Impact of accounting information on share price: Empirical evidence from Pakistan stock exchange, International Finance and Banking 3(1), 125-135.
Atrill, P. (1997). Financial Management for Decision Makers Sixth Edition. Italy: Pearson Education Limited.
Benjamin, G. (1984). The Intelligent Investor. New York: Harper Collins Publisher.
Berzkalne, I. & Zelgalve, E. (2014). Return on equity and company characteristics: An empirical study of industries in Latvia. The 8th International Days of Statistics and Economics, 94-103.
Bessembinder, H., & Chan, K. (1995). The profitability of technical trading rules in the Asian stock markets. Pacific-Basin Finance Journal, 3, 257−284.
Bettman, J. L., Sault, S. J., & Schultz, E. L. (2009). Fundamental and technical analysis: substitutes or complements? Accounting & Finance, 49(1), 21-36.
Bokhari, J., Cai, C., Hudson, R. & Keasey, K. (2005). The predictive ability and profitability of technical trading rules: does company size matter? Economics Letters, 86, 21-27
Brock, W., Lakonishok, J., & LeBaron, B. (1992). Simple technical trading rules and the stochastic properties of stock returns. Journal of Finance, 47, 1731−1764.
Campbell, J. Y. & Robert J. S. (1998). Valuation ratios and the long-run stock market outlook. Journal of Portfolio Management, 24(2), 11-26.
Capital Group (2016). World market review for October 2016. Retrieved from https://www.thecapitalgroup.com/us/insights/market-commentary/world- markets-october-2016.html#
Chan, K.T., Yap, V.C. & Asri, N. Q. (2012). Stock performance of the property sector in Malaysia. Journal of Modern Accounting and Auditing, 8(2), 241-246.
Chauhan, A. A. (2014). The study preference of portfolio managers towards fundamental and technical analysis as a decision making tool for investing in the equity markets: Navsari City. Kadakia International Journal of Research in Multidiscipline, 1(2), 169-180.
Cheung, Y. W. & Ching, M. D. (2001). Currency traders and exchange rate dynamics: A survey of US market, Journal of International Money and Finance, 20, 439-471.
Chong, T. L. & Ng, W. K. (2008). Technical Analysis and the London Stock exchange: Testing the MACD and RSI Rules Using the FT30. Applied Economics Letter, 15, 1111-1114.
Chong, T.L., Ng, W. K. & Liew, K. S. (2014). Revisiting performance of MACD and RSI Oscillators. Journal of Risk and Financial Management, 7, 1-12.
Clarke, J., Tomas, J, & Gershon, M. (2001). The efficient markets hypothesis. Expert Financial Planning: Advice from Industry Leaders, Chapter 9, 126-141. New York: Wiley.
Cohen, G., Kudryavtsev, A. & Shlomit, H.S. (2011). Stock market analysis in practice: Is it Technical or Fundamental? Journal of Applied Finance & Banking, 1(3), 125- 138.
Constable, S. (2016). Fundamental bs. Technical stock analysts. Retrieved from http://www.wsj.com/articles/fundamental-vs-technical-stock-analysts- 1473127202.
Coutts, J.A. & Cheung, K.C. (2000). Trading rules and stock returns: some preliminary short run evidence from the Hang Seng. Applied Financial Economics, 10, 579- 586.
Dita, A. H. & Murtaqi, I. (2014). The effect of net profit margin, price to book value and debt to equity ratio to stock return in Indonesian customer goods industry. Journal of Business and Management. 3(3), 305-315.
Dow, C., Russell, R., Carlson, C., Shread, P. & Sether, L. (2009). Dow theory unplugged: Charles Dow's original editorials and their relevance, First edition, W&A Publishing, Cedar Falls, IA.
Dow Theory Basic Tenents, (2016). Market Technicians Association. Retrieved from https://www.mta.org/kb/dow-theory-basic-tenets/
Drakopoulou, V. (2015). A review of fundamental and technical stock analysis technique. Journal of Stock & Forex Trading, 5(1), 1-8.
Er, S. & Vuran, B. (2012). Factors affecting stock returns of firm quoted in ISE Market: A dynamic panel dara approach. International Journal of Business and Social Research, 2(1), 109-122.
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
Frase, L., & Ormiston, A. (2004). Understanding Financial Statements. New Jersey: Pearson Prentice Hall.
Ghobadi, M. (2014). Profitability of technical analysis indicators to earn abnormal returns in International Exchange Market. Journal of Economics, Finance and Accounting, 1(4), 334-346.
Graham B, Dodd D (1996). Security Analysis: The Classic 1934 Edition, McGraw-Hill, New York, NY.
Hartono, J. & Sulistiawan, J. (2015). Performance of technical analysis in declining global markets. Global Journal of Business Research, 9(2), 41-52.
Hassan, S.S, Farooq, S. & Muddassir. M. (2015). Stock return indicators: Debt to equity, book to market, firm size and sales to price. Journal of Poverty, Investment and Development, 16, 25-32.
Hooke, C. J. (2010). Security analysis and business valuation on Wall Street: A comprehensive guide to Today's valuation methods, 2nd Edition, New Jersey: John Wiley& Son Inc.
Hou, K. W., Kho, B. K. & Karolyi, G.A. (2011). What factors drive global stock returns? Review of Financial Studies, 24(8), 2527-2574.
Hudson, R., Dempsey, M. & 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 & Banking, 20, 1121- 1132.
Jagongo, A. & Mutswenje, V.S. (2014). A survey of the factors influencing investment decision: The case of individual Investors at NSE, International Journal of Humanities and Social Science, 4(4), 92-102.
Jeffrey E. J. (2010). Efficient markets hypothesis and daily variation in small Pacific- basin stock markets. Management Research Review, 33 (12), 1128 - 1139.
John, P. (2004). Complete Guide to Technical Trading Tactics: How to Profit Using Pivot Points, Candlesticks & Other Indicators. Hoboken: John Wiley & Sons.
Karami, G. R. & Talaeei, L. (2013). Predictability of stock returns using financial ratios in the companies listed in Tehran Stock Exchange. International Research Journal of Applied and Basic Sciences, 5(3), 360-372.
Kheradyar, S., Ibrahim, I., Mat, N.F. (2011). Stock return predictability with financial ratio. International Journal of Trade, Economic and Finance, 2(5), 391-396.
Khotimah, K. & Murtaqi, I. (2015). The fundamental analysis of Indonesian stock return. Journal of Business and Management, 4(1), 95-104.
Kumar, N., Mohapatra, S. & Sandhu, G. (2013). Importance of technical and fundamental analysis and other strategic factors in the Indian stock market, Management Review: An International Journal, 8(1), 38-75.
Lee, F.C. & Shih, K. W. (2010) Technical, fundamental, and combined information for separating winners from losers, Working Paper Series, Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1590460.
Lento, C., N. Gradojevic, & C. Wright. (2007). Investment information content in Bolinger Band. Applied Financial Economics Letter, 3, 263-267.
Liem, P.F. & Basana, S. R. (2012). Price earnings ratio and stock return analysis. Jurnal Manajemen dan Kewirausahaan, 14(1), 7-12.
Lo, A.W., Mamaysky, H. & Wang, J. (2000). Foundations of technical analysis: computational algorithms, statistical inference, and empirical implementation. The Journal of Finance, 55(4), 1705-1765.
Lui, Y. H. & Mole, D. (1998). The use of fundamental and technical analysis by foreign exchange dealers, Hong Kong evidence, Journal of International Money and Finance, 17(3), 535-545.
Marshall, B. R., Qian, S. & Young, M. (2009). Is technical analysis profitable on US stocks with certain size, liquidity or industry characteristics? Applied Financial Economics, 19(15), 1213-1221.
Martani, D., Mulyono, and Khairurizka, R., (2009), The effect of financial ratios, firm size, and cash flow from operating activities in the interim report to the stock return, Chinese Business Revies, 8(6), 44-55.
Mckenzie, M.D. (2007). Technical trading rule in emerging markets and 1997 Asian currency crises. Emerging Markets Finance and Trade, 43(4), 46-73.
Metghalchi, M., Chang, Y.H., & Xavier, G.G. (2012). Technical analysis of the Taiwanese stock market. International Journal of Economics and Finance, 4(1), 90-102.
Metghalchi, M., Chang, Y. & Marcucci, Y. (2008). Is the Swedish Stock Market Efficient? Evidence from Some Simple Trading Rules. International Review of Financial Analysis, 17(3), pp.475- 490.
Metghalchi, M. Du, J.J., & Ning, Y.X. (2009). Validation of moving average trading rules: Evidence from Hong Kong, Singapore, South Korea, Taiwan, Multinational Business Review, 17 (3), 101 - 122.
Metghalchi, M., Yong, G., Xavier, G.G. & Chen, C. (2007). Profitable technical trading rules for Austrian stock market. International Business & Economics Research Journal, 6(9), 49-58.
Mitra, S. K. (2011). Usefulness of moving average based trading rules in India. International Journal of Business and Management, 6(7), 199-206.
Moosa, I. & Li, L. (2011) Technical and fundamental trading in the Chinese stock market: Evidence based on time-series and panel data, Emerging Markets Finance and Trade, 47(1), 23-31.
Muhammad, N. & Scrimgeour, F. (2014). Stock return and fundamentals in Australian market. Asian Journal of Finance and Accounting, 6(1), 271-290.
Murphy, J. (1999). Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications. New York: New York Institute of Finance.
Nadeem, I., Sajid, R. K. & Muhammad, A. K. (2013). Does fundamental analysis predict stock returns? Evidence from non-financial companies listed on KSE. Knowledge Horizons, 5(4), 182-190.
Neely, J.C., Rapach, E.D., Tu, J. & Zhou, G. (2010). Out-of-sample equity premium prediction: Fundamental vs. Technical analysis, Research collection Lee Kong Chain School of Business paper No. 3063, Retrieved from https://www.kevinsheppard.com/images/5/51/Neely_Rapach_Tu_Zhou.pdf.
Oberlerchner, T. (2001). Importance of technical and fundamental analysis in the European foreign exchange market, International Journal of Finance and Economics, 6(1), 81-93.
Oplatek, J. (2007). Technical Analysis. Retrieved from http://is.muni.cz/el/1456/podzim2007/PFFMRA/um/Microsoft_PowerPoint_-_9.
Ou, J.A & Penman, S.H. (1989). Financial statement analysis and the prediction of stock returns. Journal of Accounting and Economics 11, 295-329.
Ozlen, S. & Ergun, U. (2012). Macroeconomic factors and stock return. International Journal of Academic Research in Business and Social Science, 2(9), 315-343.
Park, C., & S. Irwin. (2007). What do we know about the profitability of technical analysis? Journal of Economic Surveys, 21(4), 786-826.
Paul, R.L.M. (2016). Warren Buffett is beating the market again. Retrieved from http://money.cnn.com/2016/04/25/investing/warren-buffett-berkshire-hathaway- stock-annual-meeting/
Petrusheva, N., Jordanoski, I. (2016). Comparative analysis between the fundamental and technical analysis of stocks. Journal of Process Management, 4(2), 26-31.
Qi, M., & Y. Wu. (2005). Technical Trading-Rule Profitability, Data Snooping, and Reality Check: Evidence from the Foreign Exchange Market. Journal of Money, Credit and Banking, 38, 2135-2158.
Ray, J. (2014). The 4 basic stock market index facts u should know. Retrieved from http://klse.i3investor.com/blogs/iisb/66560.jsp.
Ray, S. (2012). Revisiting the strength of Dow theory in assessing stock price movement. Advances in Applied Economics and Finance, 3(3), 591-598.
Reilly, B. & Keith, C. B. (2012). Analysis of Investments & Management of Portfolios, Tenth International Edition. Canada: Cengage Learning.
Riaz, S., Liu, Y.P., & Khan, S.H. (2015). Exploring the relationship between market value and accounting numbers of firms in Pakistan. Asian Journal of Finance and Accounting, 7(1), 230-238.
Schwager, J. (1999). Getting Started in Technical Analysis. New York: John Wiley & Sons.
Seetharaman, A. & Rudolph, J.R. (2011). An empirical study on the impact of earning per share on stock prices of a listed bank in Malaysia. Journal of Applied Economics and Finance, 5(2), 114-12.
Seng, D. & Hancock, J.R. (2012). Fundamental analysis and the prediction of earnings. International Journal of Business and Management, 7(3), 32-46.
Sharma, S. (2011). Determinants of equity share price in India. Journal of Arts, Science and Commerce, 2(4), 51-60.
Sharma, M. & Preeti. (2009). Prediction of stock returns for growth firms- Fundamental analysis. The Journal of Business Perspective, 13(3), 31-40.
Sehgal, S. & Garhyan, A. (2002). Abnormal Return Using Technical Analysis: The Indian Experience. Finance India, 16 (1), 181-20.
Sohail, M. K. & Jenhanzeb (2015). Does technical analysis generate superior profits? A study of KSE-100 index using simple moving average. City University Research Journal, 5(2), 338-348.
Srinivasan, P. (2012). Determinants of equity share price in India: A panel data approach. The Romanian Economic Journal, 15(46), 205-228.
Suresh, A.S (2013). A study on fundamental and technical analysis. International Journal of Marketing, Financial Services & Management Research, 2(5), 44-59.
Suzana, B., Sinisa, B. & Zoran, I. (2012). Strategy of Stock Valuation by Fundamental Analysis. UTMS Journal of Economics, 4 (1), 45-51.
Swart, D. J. (2011). Are fundamental & technical analysis able to generate significant risk-adjusted returns on European Government Bonds? Erasmus University Rotterdam.
Tijjani, B., Fifield, S.G.M. & Power, D.M. (2009). The appraisal of equity investments by Nigerian investors. Qualitative Research in Financial Markets, 1, 6 - 26.
Venkatesh, C.K. & Tyagi, M (2011) Fundamental analysis as a method of share valuation comparison with technical analysis, Bangladesh Research Publication Journal, 5(3), 167-174
Wafi, A. S., Hassan, H., & Mabrouk, A. (2015a). Fundamental analysis vs technical analysis in the Egyptian stock exchange-Empirical study. International Journal of Business and Management Study-IJBMS, 2(2), 212-218.
Wafi, A. S., Hassan, H., & Mabrouk, A. (2015b). Fundamental analysis models in financial markets-Review study". Procedia Economics and Finance, 30, 939-947.
Wang, J., Fu, G., & Luo, C. (2013). Accounting information and stock price reaction of listed companies-empirical evidence from 60 listed companies in Shanghai Stock Exchange. Journal of Business & Management, 2(2).
Wang, I., Haslam, J. & Marston, C. (2007). The appraisal of ordinary shares by financial analysts in China. BAA Conference, London.
Wijesundera, A. A. V. I., Weerasinghe, D. A. S., Krishna, T. P. C. R., Gunawardena, M. M. D. & Peiris, H. R. I. (2016). Predictability of stock returns using financial ratios: Empirical evidence from Colombo Stock Exchange. Kelaniya Journal of Management, 4(2), 44-55.
William, C. S. (2016). The Random Walk and the Efficient Market Hypotheses. Retrieved from http://thismatter.com/money/investments/random-walk-efficient market-hypotheses.htm.
Wong, P.H. & Ghafar, M.A.A (2015). The impact of accounting earnings on stock return: The case of Malaysia's Plantation industry. International Journal of Business and Management, 10(4), 155-165.
Wong, W. K., Manzur, M. & Chew, B. K. (2003). How rewarding is technical analysis? Evidence from Singapore stock market. Applied Financial Economics, 13(7), 543- 551.
Wu, W. T. (2014). The P/E ratio and profitability. Journal of Business & Economics, 12(1), 67-76.
Copyright (c) 2018 UNIMAS Review of Accounting and Finance
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.