Information Asymmetry and Performance of Technical Analysis During Times of Crises in Scandinavian Markets
Abstract
This thesis investigates the probability of informed trading (PIN) during crisis periods across the Norwegian, Swedish, and Danish stock exchanges. The focus is on the financial crisis of 2008, the COVID-19 pandemic, and the Russia-Ukraine war. Utilizing the framework of Hung and Lai (2022), this study examines the effectiveness of the technical analysis indicators Moving Average Crossover (MAC) and Moving Average Convergence Divergence (MACD) conducted on the Oslo Stock Exchange. The crises are sectioned into pre-, during, and post-crisis periods, estimating PIN for each phase on the separate exchanges to identify patterns across the different markets. Our results indicate a higher probability of informed trading during the financial crises compared to the health or geopolitical crises, with various PIN values observed among the Scandinavian markets. Furthermore, we investigate the performance of technical analysis during periods of varying information asymmetry. The findings suggest that using a MAC strategy before and during a financial crisis outperforms a Buy-and-Hold (BH) strategy. However, there are no significant outperformance measures for the health and geopolitical crises. The thesis contributes to the understanding of market behavior during uncertainties in financial markets, highlighting the information asymmetry in disruptive time periods. Despite having limitations, the research paves the way for future research to refine our findings and explore further market contexts.