UNIVERSITY OF ILLINOIS
Department of Finance
Finance 361 - Ahlgrim

Technical Analysis Project
Due Wednesday, November 3
25 points

Overview
In this project, you will analyze one weak form anomaly of the efficient market hypothesis.  Your results will confirm or deny the existence of the anomaly based on the (limited) data that you will analyze.  You can have up to four people in a group.

Requirements
Choose one of the following strategies to test: filter rule, moving average, return reversals, momentum strategies, price/earnings, market-to-book, small vs. large firm, day of the week

By Monday, October 18, send me an e-mail with your top two choices for strategies to test (please copy your group members on the e-mail).  If a lot of groups request the same anomaly, you may have to analyze your second choice.  I will notify your group as I receive your e-mail.  First come, first served.

Obtain stock data for performing your analysis using the Bridge system which is available on the computers in the basement of DKH (rooms 3, 7, 21, and 24).  You are free to choose any stock(s) that you choose.  A description of how to use Bridge is available on the web (URLs are given below).

Write a report that documents your findings.  Include a description of the anomaly that you are testing and a summary of the analysis that you performed to test the anomaly.  After you test the strategy, indicate (1) how to take advantage of any violation of the efficient market hypothesis or (2) that no such violation exists.  Keep your report short.  Your report should have no more than 5 written pages and 5 pages of supporting documentation or exhibits.  It is quite possible, that the report will be significantly shorter.

Comments

• Be sure to include dividends when you determine returns.
• In class, we discussed risk adjustment when testing the efficient market hypothesis.  For purposes of this project, we will ignore all risk adjustments.  This means that you can simply use the raw returns in your analysis.
• Use at least 50 data points in your study.  You may choose any time period (daily returns, weekly returns, monthly returns).  Include a short description of the data in your report.  There is no need to attach the data.
• When a strategy is based on relative performance (e.g., momentum), choose an industry from Value Line and compare the listed companies within the industry.  By using firms from the same industry, we assume that the risk factors for all firms are the same.
• Bridge documentation is available at http://www.cba.uiuc.edu/broker/bridge.htm and information about downloading Bridge data directly into Excel is at http://www.cba.uiuc.edu/broker/bdde.htm.
• There is no right or wrong answers.  You will be graded on the your understanding and explanation of the anomaly as well as the validity of your test.  Be sure to completely describe your approach in your report and attach any supporting exhibits which document your conclusions.