Analysis of Moving Average Convergence Divergence(MACD) as a Tool of Equity Trading at the Karachi Stock Exchange

Sammanfattning: The study is an effort to analyse Moving Average Convergence Divergence (MACD) as a tool of equity trading at the Karachi Stock Exchange.Technical Analysis is one of the methods that provide basis for decision making in equity trading.MACD is one of the variables of Technical Analysis.Although some earlier studies have been made to understand the MACD model,such studies have been carried out from the perspective of developed stock exchanges such as the New York Stock Exchange.Such studies are useful,however,they often fail to capture adequately the dynamics of the operation of stock trading from the perspective of perspective economies such as Pakistan.The theory and literature did not provide any previous study about the MACD model at the Karachi Stock Exchange.The study aims to address the gap in knowledge by evaluating the MACD as a tool of equity trading at the Karachi Stock Exchang. The pertinent research question of the study is whether MACD a significant tool of equity trading at the Karachi Stock Exchange.Eleven scrips from different sectors on the Karachi Stock Exchange for the period of three years from 2007 to 2009 is the relevant data for the study.The returns generated by the scrips against Buy and Hold Strategy have been compared with returns of MACD on the basis of Sharpe Ratio.The empirical evidence leads to the inference that MACD is a significant tool of equity trading at the Karachi Stock Exchange.Hence,it was concluded that MACD is informative as it provides basis for decision making that may lead to value investments in equity trading at the Karachi Stock Exchange.The study is of academic value as it has evaluated the Karachi Stock Exchange for the first time in the perspective of MACD.While,its practical value is established by the fact that it provides basis for equity trading at the Karachi Stock Exchange.