Note on Technical Analysis and the Efficiency of the Malaysian Stock market

Abstract

Technical analysis, a study of how past prices can be used to forecast future prices, is one of the tools used by investors to cam excess. retum. Nevertheless, it is probably the most controversial aspect of investment management especially due to the existence of the random walk theory. According to the random walk theory, new information about a company or industry that affects the prospects of the company is disseminated very quickly and randomly over time once it becomes public. This causes stock prices to move in a random fashion and results in a weak-form efficient market where it is impossible for an investor to make abnormal profits using historical price information which has been publicly known. Technical analysis, on the other hand, is the study of the market itself. It involves the study of historical market data, basically prices and volume, to identify patterns that signal when to buy or sell and does not involve other information on the company.