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Efficiency Differences Between the SP 500 and the Tel-Aviv 25 Indices A Moving Average Comparison This paper compares the Tel-Aviv Stock Exchange TASE 25 Index TA25 to the SP 500 Index with respect to the extent that the Technical Analysis method of moving average can beat the buy-and-hold policy Previous research on the SP 500 Index is inconclusive while TA25 has never been tested in this respect For 1500 daily observations our test results imply weak-form efficiency of the SP 500 Index For TA25 no market efficiency is found for relatively short moving averages The results imply that market efficiency is higher in developed financial markets than in an emerging capital market such as the TASE Random Walk and Efficient Market Hypotheses are central ideas in explaining financial market efficiencies The assumption that market behavior embodies and reflects relevant information has a great impact on securities prices Any change in the relevant information causes price adjustment In contrast technical analysts argue that prices gradually adjust to new information Thus historical analysis is useful in diagnosing the repeated pattern behaviors leading to active investment strategies that generate better-than-market returns The purpose of this study is to examine the efficacy of using technical trading rules in the emerging market of Israel through the analysis of the Tel-Aviv 25 Index TA25 and to compare its weak-form market efficiency as defined in Fama 1970 to the erformance of the SP 500The main criticism of technical analysis is that it seems to have no plausible explanations as to why these patterns should indeed be expected to repeat Jegadeesh 2000 provides an up to date summary of such criticism Given the inconclusive evidence concerning technical analysis in general and the moving average MA method in particular it would be interesting to apply this method to the emerging market of Israel for which no such study of a major stock index of the Tel Aviv Stock Exchange has been reported
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