Foreign institutional ownership and the effectiveness of technical analysis

A B S T R A C T This paper investigates whether the effectiveness of technical analysis using a moving average (MA) approach varies with the level of information asymmetry. Using foreign institutional ownership as the proxy of information asymmetry, our empirical results indicate that moving average timing strategies for low foreign institutional ownership portfolios outperform buy-and-hold strategies. The effect holds after controlling the influence of information uncertainty suggested by Han et al. (2013). Moreover, the profitability of portfolios with low foreign institutional ownership increases along with information uncertainty. Finally, abnormal returns for MA strategies conditional on foreign institutional ownership are still significantly positive after controlling for Fama and French's (1993) three-factor model, market conditions, and market timing abilities. Our evidence therefore concludes that, in addition to informa-tion uncertainty, information asymmetry is another driving force affecting the effectiveness of technical analysis. (c) 2021 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.