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Purpose-The purpose of this paper is to establish two competitive models to explain why investors use technical analysis (TA).Design/methodology/approach-Information Discovery Model suggests that technical traders are able to infer non-public information;Herding Behavior Model argues that TA is a kind of irrational herding behavior that can make profit when other noise traders exist.Findings-The empirical results from Chinese stock market show that some technical trading rules generate significant excess retus.Research limitations/implications-The empirical results from Chinese stock market show that some technical trading rules generate significant excess retus.Stocks with stronger information asymmetry and lower liquidity experiences higher excess retu,which support the Information Discovery Model that TA is a method of information discovery for rational investors when the market is not fully efficient.Originality/value-Stocks with stronger information asymmetry and lower liquidity experiences higher excess retu,which support the Information Discovery Model that TA is a method of information discovery for rational investors when the market is not fully efficient.