1. ¹Agder University College, School of Management, Service Box 422, N-4604 Kristiansand, Norway. E-mail: steen.koekebakker@hia.no
2. ²Clarkson Research, London, UK. E-mail: roar_adland@yahoo.com
3. ³Agder Research, Kristiansand, Norway

Abstract

According to the Efficient Market Hypothesis (EMH), the use of technical trading rules, where buy and sell decisions are based on past price patterns, should not consistently yield an economically significant excess profit. This paper evaluates the validity of the EMH in the second-hand market for bulk ships based on the out-of-sample performance of technical trading rules. We evaluate a large number of different parameterisations of three of the simplest and most popular trading rules in the financial markets: filter rules, moving averages, and support and resistance levels. The empirical results suggest that trading rules are generally not capable of producing excess wealth over the buy-and-hold benchmark when accounting for transaction costs and the potential price slippage in an illiquid market. The results in this paper therefore support the validity of the EMH in the second-hand markets for bulk vessels.