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into account only the price movements and totally ignores the fundamental factors. Examining the daily prices, investors can extract different kinds of indicators such as MA, RSI, Momentum, PO and MV in order to conclude whether the specific security presents any kind of trend (Thomsett, 1999 cited by Lam, 2004). The important factor is not only the invention of a possible trend, but also its directional movement and its strength. Finally, several buy and sell signals can be extracted studying these indicators and make investors’ choices more accurate and safe. The purpose of this paper is to highlight whether derivatives returns are connected with the results of FA and TA and whether these two methods provide similar information to investors or each one opposes the other. Also we study the relation between SEC, IND, SIZ, EST and IMP with the FA and TA results. In order to highlight these issues, this paper is divided into the following sectors. Specifically, in the next part we mention the previous research similar to our topic. Next, we mention theory about financial ratios and in the last part we present some findings based on our practice. In order to become more accurate, we apply the financial analysis to the underlying market and not to derivatives, because derivatives market depends on premium and discounts of the contracts. That is the closing price is used to calculate the every day premium or discount (depends on yesterday price) in relation to the clearance price. It is important to mention that derivatives perform almost the same as the underlying asset they come from. Literature Review Nowadays, that more and more people are interested about stock exchange’s performance, financial analysis prevents them from investing their capital on wrong securities and bear the bias they introduce (Conesa and Martinez, 2004). Diachronically, academics are applying different kinds of financial analysis. Others give emphasis to the performance of the company (FA), others to the stock performance (TA) and others to both of them. We present the corresponding background research on FA and TA analysis in the next paragraphs. Ming (1984) searched how both FA and TA affected stock prices. HKSE in 1980s was an emerging market as ASE is today. He concluded that FA produced good results while TA was used as a supplementary tool. He mentioned that following trends or indicators blindly is like playing in a casino. He concluded that signals and forecasts from FA based on firms’ performance are essential for a successful investment. Lee (1987) studied the reaction of 120 companies listed in NYSE and in AMEX from July 1978 until the December of 1981 to the FA. The hypothesis tested whether buy and sell signals in favorable and unfavorable analysis respectively, would lead investors to hold a long position in favorable stocks or short position in unfavorable stocks. He came to a conclusion that market reacts to the signals of the fundamental analysis and its performance is closely connected with the results of accounting statements. The relation of FA and stock market performance drew the attention of several academics around the world and not only in US. Mukherji, Dhatt and Kim (1997), applied a FA of
Korean stock returns during the period 1982 and 1993. They constructed six ratios (Beta, D/E, E/P, B/M, MVE and S/P). They concluded that FA is positively correlated with B/M, S/P and D/E and negatively correlated with E/P and Beta. These results are coherent with findings of recent studies in several international markets (Park, 2005; Weigand and Irons, 2004; Fatemi, Desai and Katz, 2003). Also, B/M and S/P are more reliable indicators of fundamental value than E/P. These findings indicate that greater leverage and smaller size result in greater returns. Choi (1995), applied a comparative FA of US and Japan stock prices, by constructing five financial ratios (P/E, P/CF, P/BV, Capital Gains and Dividend Yield) for the period 1974 to 1989. P/E ratio is 2,5 times higher in Japan than in US while P/BV and P/CF are also higher in Japan. According to French and Poterba (1991) cited by Choi (1995), higher ratios in Japan, are based on different accounting practices (Japanese firms report earnings only for the parent company while US firms report consolidated earnings). Also dividend payments are lower in Japan than in US, but stock prices increases are higher and so capital gains are higher. Lam (2002), tried to find out whether firm size, B/M and P/E ratio are related with stock returns in HKSE. The data consists of 100 listed firms in HKSE for the period July 1980 till June 1997. The results showed that the above accounting variables were able to define the cross sectional variation in average returns over the period. Wong, Manzur and Chew (2003), tried to clarify the role of technical analysis in SSE. They examined the daily closing prices for the period 1 January 1974 till 31 December 1994 by applying two different technical indicators, MA and RSI. They concluded that technical indicators can create useful buy and sell signals and members of SSE can gain effective profits. It is important to mention that SSE members have their own trading team that its results are based on technical analysis. TA is also efficient for foreign exchange markets. Specifically, Papadamou and Tsopoglou (2001), examined the performance of different technical indicators on daily spot exchange rates for USD/DM and USD/BP for the period 3/1/1989 to 31/12/1996. They used three different indicators, MA, Momentum and MACD, to get out the appropriate buy and sell signals. All signals proved to be successful and reliable. Also, the weakness of FA to provide reliable signals for exchange rates lead analysts to use TA (Papadamou and Tsopoglou, 2001). Furthermore, TA has applicability to currency emerging markets. Specifically, Ahmed, Beck and Goldreyer, (2005), tested currency spot rates for Mexico, Chile, Thailand, Indonesia, South Korea and Philippines during the period 2 January 1990 till 10 November 2000. They used VMA and they found substantial returns through buy and sell signals, even when the currency market fell. Past research and results from this study detect that technical trading rules in emerging markets perform significant profits. Zenker (2003), studied the performance of TA applied to the airline industry. The basis point was the 11/9/2001 and the pre and post performance of the airlines industries. Applying ten different technical indicators, he concluded that TA can predict future movements, but it is difficult to make 100% accurate predictions. Data and Methodology All data, accounting statements and daily closing prices, come from the ASE database. We use accounting statements for listed companies in the
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