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The objective of this study was to conduct a profitability test from stock return volatility by using technical analysis in The Stock Exchange of Thailand. This study divided stocks into portfolios sorted by stock return volatility. The technical analysis covered Moving Average 10 Days (MA10), Moving Average Convergence/Divergence (MACD), Exponential Moving Average (EMA), and Relative Strength Index (RSI) to indicate buy and sell signals. Brown and Jennings (1989) shows that when information about stock is uncertain, fundamental signals are likely to be imprecise so investors tend to rely more heavily on technical signals. If this is the case, following technical signals should exhibit stronger profit in high-information-uncertain stocks than for low-information-uncertain stocks. Therefore, this study hypothesized that the profitability of using technical analysis should increase by the level of stock return volatility. This study examined the stock price of firms listed in The Stock Exchange of Thailand from 2012 to 2016.
The results confirm that portfolios that follow MA10 and MACD signals gain higher return than buy-and-hold timing portfolios, given the higher level of stock return volatility. Additionally, portfolios that follow MA10 and MACD signals gain smaller return than buy-and-hold timing portfolios in the uptrend of SET index and the profitability of using technical analysis will not increase by the level of stock return volatility. On the other hand, portfolios that follow MA10 and MACD signals gain higher return than buy-and-hold timing portfolios in the downtrend of SET index and the profitability of using technical analysis increases by the level of stock return volatility.
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