4. Investigation into Optimal Trading Rules in Indian Stock Market

This chapter deals with momentum trading and possibility of a profitable trading strategy in the Indian stock market. It does so by examining the historical moving averages of the indexes. According to the trading rule, an investor should buy when price is above some moving average of historical prices and sell when price falls below some moving average. The study considers several moving averages, short run, medium run, and long run, and explores whether the general buy and sell strategies fare better than the holding strategy based on the moving average. Existence of a momentum strategy would reaffirm the doubt that the Indian stock market is not efficient. It will put a question mark to the invincibility of the market, as suggested by the efficient market hypothesis.