Research FYP 2

UNIMAS Review of Accounting and Finance
Vol. 1 No. 1 2018

Fundamental Analysis VS Technical analysis: The Comparison of Two
Analysis in Malaysia Stock Market
Shaharudin Jakpar, Michael Tinggi, Akmal Hisham Tak and Chong Wen Yi
Faculty of Economics and Business, Universiti Malaysia Sarawak (UNIMAS)
ABSTRACT
This study is conducted to analyse the credibility of the fundamental analysis and technical analysis
on predicting the stock return and compare both models to determine which model is more credible to
be used as a good trading strategy by investors. The study is based on 80 companies selected from Bursa
Malaysia in the food manufacturing industry in the main market from the year of 2012 to 2016. The
stock return is used to measure whether both analyses are able to forecast and generate the positive
return. Net profit margin, price earnings ratio and total asset turnover are used as fundamental indicators
while moving average convergence divergence is used as technical analysis indicators. In order to test
the significance of both model on stock return, panel regression models are applied in this study. The
result shows that although both model can be used to generate positive return, technical analysis did not
outperform fundamental analysis in the food manufacturing industry in Bursa Malaysia.
Keywords: Fundamental analysis, Technical analysis, Stock return, Trading strategy, Investors, Bursa
Malaysia.
INTRODUCTION
A stock market is a virtual form intermediation where buyers and sellers can trade their assets such as
shares and company securities (Reilly & Keith, 2012). Stock market has play a crucial role which
determine the price of underlying assets at any particular time by matching all the available information.
When there are buyers and sellers who are willing to participate in trade in an asset, stock market works.
High demand of an asset will cause the value of the asset to rise. The first stock market was initially
developed in London in 1606 which means the stock market has roughly over 400 year of histories.
Today, due to the advancement of technology, the stock markets have risen to become extensive
exchanges of capital and funding, trading in trillions 24/7 across the world.
Stock markets have transformed globally over the past few centuries. Traders can trade their asset
all over the world. There are around 60 exchange stock markets in the world. According to Worlds
Federal of Exchange monthly report of 2015, there are 16 major exchange stock market which has
market capitalization of over US $ 1 trillion each which are New York Stock Exchange, NASDAQ,
London Stock Exchange Group and etc. According to report of Capital group in October 2016, the
performance of US stock has weakened due to the rise of interest rate. The standard and poor's 500
composite index slipped 2%; Dow Jones Industrial Average declined by 1 %; NASDAQ composite
index decreased by 2%. Moving to Europe market, although European stocks has gained 0.3% overall, it
had been offset due to the departure of United Kingdom from European Union. For Asian-Pacific,
Japanese Yen depreciated 4% against the U.S dollar which caused the Japanese equities rose. Besides,
weakening yen caused the shares of Japanese exports to rise. Financial sectors had the best performances
among all sectors which gain 9%. However, emerging markets stocks have a decreasing trend and pulled
back to an increasing trend. This scenario is due to the increase of US interest rate and outcome of the
US presidential election.
As the stock markets change dramatically, securities analysis is one of the important issue for
investors to determine the market trend and to reduce gambling aspects of investing (Hooke, 2010).
© 2018 UNIMAS All Rights Reserved Page | 38

Vol. 1 No. 1 2018
Generally, there are two common types of analysis that are usually used by investors which are
fundamental analysis and technical analysis. Both of them can be used to determine the value of a stock
and also forecast the future performance of the stock. However, fundamental analysis analyzes the
intrinsic value of a particular stock while technical analysis predicts when is the best time for investors
to buy and sell the stock. According to Oberlechner (2001), most traders used both fundamental and
technical approaches to make their financial decision in Europe countries which are London, Vienna and
Zurich. However, traders from London used fundamental more often whereas traders from Vienna and
Zurich use a significant more technical analysis approach. Another survey that studies traders in US
market found that 30% of traders which could be characterized as technical analysts and traders who are
using technical analysis is increasing. (Cheung & Ching, 2001).
Moving to Nigeria, most of the Nigerian traders use fundamental analysis to evaluate the value of
share. 80% of the USA and UK analysts who participated in the survey used fundamental analysis such
as P/E ratio to forecast the market value whereas technical analysis is ranked as second choices
(Tijjani& Power, 2009). However, for emerging market, investors choose fundamental analysis as their
main approach while technical analysis was ranked as second when they make their investment decision
(Al-AbdulQader et al, 2007). Another similar survey conducted by Wang et al (2007) in China. Based
on their finding, there are 80% of respondents that preferred fundamental analysis, while 44% of the
respondents preferred technical analysis. Technical analysis is profitable when applied in Singapore
stock market. Hence, most of the investors rely heavily on technical analysis. (Wong et al, 2003).
Based on all these previous studies shown that traders from different location will have different
trading philosophies. Even though the information is provided symmetries among different countries,
they will have different interpretation and have different expectation on it. Therefore, different countries
tend to have different preferences on investment strategies due to cultural differences in every country.
Hence, this research is to investigate which approach (fundamental analysis or technical analysis) is
more credible to assist investors in forecasting the movement of stock in Malaysia stock market.
The stock market in Malaysia known as Bursa Malaysia. It is a visual platform where market
participants trade their financial instrument such as equities and derivatives. There are various products
and services which provide by Bursa Malaysia such as equities, derivatives, bonds and etc. However,
there are two types of markets which are Main market and Access Certainty Efficiency Market (Ace).
Both of them consists of 808 companies and 113 companies respectively. It operates under the
supervision of Securities Commission. In 2015, Bursa Malaysia was ranked 12th as most competitive
country in the world. According to Bursa Malaysia, the market capitalization had achieved RM1.69
trillion as at 30 September 2016 which has increase 5.6%. In 2006, FTSE group collaborated with Bursa
Malaysia to provide a suite of indices for Malaysia Market. There are lots of indices can be used as a
benchmark of the performance of the stock in various sectors and segments. The most common that used
by investors to gauge the overall market performance and economic development is known as FTSE
Bursa Malaysia KLCI which is also known as FBM KLCI. It is a capitalization-weighted stock market
index which form by 30 largest market capitalization listed companies in Bursa Malaysia. All these
companies need to fulfill the eligibility requirement which set by FTSE and Bursa Malaysia. Every 15
seconds, the values of FBM KLCI will be calculated and disseminated to provide a continuity of KLCI
index value. Thus, historical movement of the Malaysian stock market can be preserves. It is essential
for investors to understand and familiar with stock market index. It assists investors to make their
financial decision on time through anticipate the performance of the stock market without rely on
speculation. According to annual report of Bursa Malaysia, the share price closed at RM 8.35 on 31
December 2015 which has increased 3%. The highest price is RM9.00 on 24th April 2015. However,
compared to FBM KLCI, the share price performance of Bursa Malaysia is better. This is due to
depreciation of Ringgit, depressed commodity price, a slowdown of China economy, and higher interest

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rate in the US which lead to capital outflow. The figure 1 below shown the comparison of Bursa
Malaysia share price performance and FBM KLCI.
Figure 1: Share Price Performance vs FBM KLCI
Source: Bursa Malaysia Annual Report 2015
In 2015, the movement of the share is quite volatile which can be proved through the zip- zap
graph in the figure 2 below. In January, there is a decreasing trend from 5 January 2015 - 6 January 2015
due to concern over decreasing crude oil prices and potential of Greece's exit from Eurozone dampen
sentiment. On 9 March 2015 to 10 March 2015, rising interest rate of US and failing crude oil prices had
brought the market down turn. On 21 April 2015, FBM KLCI had closes at its highest level for 2015
which is 1,862.80 points. However, the graph showed a decreasing trend which is caused by several
events. Those events were prime minister unveils the 11th Malaysia Plan, rise of interest rate of US and
possibility of a Greek debt default. Nevertheless, the trend drops dramatically in August 4 to 24 and
pulled back to an increasing trend in August 25 to 28. According to the annual report of Bursa Malaysia,
the decreasing trend is due to devaluation of Chinese Yuan with depreciation of Malaysian Ringgit and
weakening of crude oil and commodity price and it turn to increasing trend when the announcement of
decision of Chinese government and US Federal Reserve to hold the interest rate. It can be concluded
that the overall performance of Malaysia stock market in 2015 is not idealistic compared to 2014.
Figure 2: Daily Open and Closing Price of FBM KLCI and the Trading Volume, 2015- 2016
Source: Yahoo Finance 2016

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Fundamental analysis is known as the cornerstone of investing which is used to evaluate intrinsic
value of a security (Drakopoulou, 2015). It evaluates a security by examining the underlying forces
which can affect the value of security such as macroeconomic factors. The main objective of the
fundamental analysis is to forecast future earnings and the true value of the security so that investors can
make investment decision on time to gain profit (Suresh, 2013). There are three phases to examine the
fundamental analysis which can be known as EIC (economy-industry-company) framework or top-down
approach. (Suresh, 2013). These three phases have derived a current fair value of stock and predicting
the future value. Firstly, for economic level, economic indicators such as inflation rate, interest rate,
unemployment rate, and monetary policy are used to assess the growth of the national economy.
Undoubtedly, the overall economy is closely related to the stock market, the movement of economy
directly affects the stock market condition (Ozlen& Ergun, 2012). When the economy is performing
well, investors tend to anticipate the stock to perform as well. For industry level, competitive analysis of
industries and industry life cycle analysis have been identified in order to assess the prospects of various
industry groupings (Suresh, 2013). At company level, fundamental analysis deals with the financial
statement, management, business concept and all other aspects of the company to get more insight on
the growth and performance of the company. Historical accounting data such as profitability, leverage,
activity and efficiency ratio reveals the performance and the value of the company (Nadeem&
Muhammad, 2013). It is commonly used by investors to analyze financial status of a company.
Before making an investment decision, investors should evaluate the three phases of fundamental
analysis. This is due to each share will have their intrinsic value which are based on its present and
future earning capacity. A comparison of the intrinsic value of the share and the prevailing market price
can be done to arrive at an investment decision. If the current stock price is not equal with the intrinsic
value, the stock is either overvalued or undervalued thus investors can gain their profit through buying
those undervalued stock which the intrinsic value of the stock is higher than market value (Drakopoulou,
2015). This is due to the price of such a share is expected to move up in future in order to match with its
intrinsic value. An analytical framework which based on the information of the company, the industry
that company belongs and the overall economy is provided for investors to assists their rational
investment decision-making. However, valuation techniques used differ in different industry groups and
different companies (Petrusheva&Jordanoski, 2016). Although the value of a share can be evaluating by
fundamental analysis, investors should be cautious while analyzing it. Some research might be written
by a sell-side analyst or press releases and corporate statements of a company that announces good
news. Therefore, investors should be alert and become skilled readers to ignore the hype and focus on
the important information (Suresh, 2013)
Technical analysis is also known as "charting" which uses different types of charts that show past
price movement to predict the future financial price movement (Lo el al, 2000). Technical analysis does
not calculate intrinsic value of a stock and only study on the behavior of the market which only focuses
on the price action (Venkatesh & Tyagi, 2011). Based on the concept of technical analysis, demand and
supply is the main factor that affects the price of a stock. (Suresh, 2013). It means that a higher price
reflects an increase in demand whereas lower prices reflects there is an increase in supply. The aim of
Technical analysis is to help investors to determine the best time to buy and sell the sock by spotting
demand and supply levels as well as breakouts in the chart. (Petrusheva & Jordanoski, 2016). Technical
analysis is based on three premises which are shown in the following (Mitra, 2011).
 All relevant information is discounted and already price-in in stock price

 Movement of prices tend to follow the trends
 Historical of the price movement often repeat.
There are some tools and techniques that have been developed by technical analyst to study the
past pattern of stock price movements and forecast future movements. Basically, the tools and

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techniques were developed based on prices, time, volume and width. (Suresh, 2013). There is variation
of techniques of technical analysis such as chart analysis, pattern recognition analysis, seasonality and
cycle analysis and computerized technical trading system (Park & Irwin, 2004). Technical analysts
normally used those tools and techniques to trade in the stock market. Moving average is one of the
popular technical analysis often used by investors and also technical analysts. There are three types of
moving average which are simple, weighted and exponential. A moving average is a smooth
presentation of underlying historical prices by calculate the average price of the stock in a specific
period of time. It can be tailored in any time frame. The common moving average lengths are 10, 20, 50,
100 and 200, thus it is suitable for long-term and short term investors (Suresh, 2013).
There is a moving average strategies to determine the buy and sell signal which is crossover
method. The most basic type of crossover is when the prices passes through the moving average or when
the prices moves from one side of moving average and closes on the other. The crossover prices can be
used as a basic entry or exit strategy. However, there is another strategy of moving average that involves
two moving average to create buy and sell signals which is one longer moving average and one shorter
moving average (Mitra, 2011). Golden cross is known as buy signal whereas death cross is known as
sell signal. Golden cross takes place when the short-term moving average crosses above the long-term
moving average which is also known as upward momentum. On the other hand, death cross takes place
when the short-term moving average crosses below the long-term moving average which is also known
as downward momentum. Technical analysis is using simple logic and application to forecast future
profit without analyzing the factors that have impact on the overall economy, industries and companies.
It only focuses on the movement of historical stock price and the volume traded. Technical analysis can
be done with the help of computer tools which is easier for investors to use. Some may argue that
technical analysis cannot be valid due to lack of academic or scientific confirmation. (Petrusheva
&Jordanoski, 2016). However, there are many previous studies has proved that technical analysis is both
useful and profitability (Metaghalchi et al, 2012).
Fundamental and technical analysis are the most common method used by market participants in
the stock market as it manages to deal with the dilemma that are faced by those participants (Chauhan,
2014). The approaches used in fundamental and technical analysis does not overlapped but both of them
seem to be converging. (Constable, 2016). Some analysts may think that technical analysis is the
substitute of the fundamental analysis. However, in a study stated that both of them can complement to
each other in order to capture above-average return (Bettman and Sault, 2009). The main difference
between fundamental analysis and technical analysis is the way they are used to predict a value of
securities. Fundamental analysis studies the overall performance of the economy, industry and the
company in order to determine the fair value of stock and compare it with market values, thus
identifying the investment opportunities (Wafi et al, 2015b). However, technical analysis studies about
the market which only focus on the movement of the share price. It does not consider the economic
factors or the fair value of the stock, what matters is the pattern of the chart which is created by the
demand and supply. Thus, get the insights from it and get into and exit the market in the most
appropriate time (Petrusheva & Jordanoski, 2016).
The basic principle of both method is different which cause the way of working different.
Fundamental analysts believe that the market do not reveal the true value of the stock accurately at any
given moment, some stock might be overvalued or undervalued. On the other hand, technical analysts
consider all relevant information has reflected on the stock price, the movement of the stock price tend
to repeat themselves in the future. However, the main criticism toward the fundamental and technical
analysis derives from the economic theory which is efficient market. According to efficient market
theory, all the information is already reflected to the current stock price thus stock will always trade at
their fair value. It is impossible to outperform the market and obtain profit from it (Clark et al, 2001).
Thus, it suggested that it is pointless to use fundamental and technical analysis. However, there are

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many researchers that argue about it and had shown that it is possible to outperform the market and
generate profit from it. For example, Warren Buffett is beating the market consistently over long periods
of time. (Paul, 2016).
The main purpose of this study is to investigate the credibility of fundamental analysis and
technical analysis on forecasting stock price and abnormal return gained by investors. This research
seeks to examine which techniques is more credible and preferable in predicting the stock return in
Malaysia stock market between fundamental analysis and technical analysis? It is a question that has
been asked for past decades. Do fundamentals and technical analysis capture the similar stock return in
the data? Which has more predictive power, fundamental analysis or technical analysis? In Bursa
Malaysia, there are over hundreds of listed companies in various sectors that can be invested on, it is a
difficult task to choose which stock to put their funds in and trade. Therefore, there are some aspects that
investors should determine in order to generate the maximum profit from their investment. This study
helps investors, portfolio's managers and Brokers in financial decision making by applying the better
approach of analyzing the movement of stock in Malaysia stock market.
LITERATURE REVIEW
Fundamental analysis
Fundamental analysis is well known in examine how well does a company perform in the industry and
forecast future earnings and stock price of a company. According to a survey that is conducted by
Jagongo and Mutswenje (2014), fundamental analysis of a company is one of the important factors that
affect individual investment decision. Fundamental factors is considered as the main factors that affects
the movement of the stock return (Hou et al, 2011). It can be used to predict the future earnings or
return. However, there are several papers which support the predicting power of fundamental analysis.
In the prior studies, Ou and Penman (1989) suggested that abnormal return can be predicted by using
fundamental analysis. 68 accounting descriptors that can be used to describe leverage, activity and
profitability of the firm was reduced in several stages to calculate the summary value of measure (Pˆ).
Thus, the Pˆ is used to predict stock return. Through the research, they found that fundamental signals
have the predicting power. Abarbanell and Bushee (1998) has done a similar research and get the same
result which stated that fundamental analysis can be used to predict abnormal return by using different
approach from Ou and Penmen research. They used the accounting ratio that consists of conceptual and
theoretical background where Ou and Penmen (1989) did not include in their studies. They focus on
individual signal to evaluate the strength of predictive power of each signal instead of combine the
predictors into a summary measure. Therefore, the contextual that influence their credibility can be
investigated.
Besides, Kheradyar, Ibrahim and Mat (2011) studied the ability of financial ratio to predict the
stock returns. Three financial ratio are dividend yield, earning yield and book-to- market ratio. Least
square technique and multiple regression were used in the research. It showed that three of them can be
used to forecast stock return. However, Book-to-market value showed higher predicting power than the
other two. Similar findings are those of Sharma (2011) suggested that earning per share, dividend per
share and book value per share have significant influence on the stock price. Different from result of
Kheradyar, Ibrahim and Mat, she found that the strongest determinants of stock price are dividend per
share and earning per share. Almumani (2014) studied the quantitative factors (dividend per share,
earning per share, book value per share and price earnings ratio) that give an impact on stock prices.
Linear multiple regression and correlation have been selected to explain the relationship between them.
The result show that all of them have positive correlation with market price.
Asif, Arif and Akhbar (2016) investigated the predicting power of accounting information and the
share price by using OLS regression method. The accounting ratio included EPS, book value per share,

Vol. 1 No. 1 2018
capital employed per share and operating cash flow per share. Their finding showed that accounting
information parameter have joint explanatory power to forecast the stock price. On the other hand, there
are some studies that did not support the predicting power of fundamental analysis on stock return.
Sharma and Preeti (2009) suggested that fundamental analysis has statistically insignificant relationship
with stock returns. Profitability of firm, cash performance, operating efficiency and liquidity are the
fundamental signals that are used in the research, F-score is calculated and found that there is an
insignificant relationship between fundamental signal and stock return of firm. A similar research is
studies by Nadeem, Sajid and Muhammad (2013). They found that fundamental analysis has no
predicting power on stock return for non-financial sectors in Pakistan. Five fundamental signals which
are leverage ratio, profitability ratio, efficiency ratio, liquidity ratio and market based ratio have been
tested by using simple regression in this research. They suggested that fundamental analysis is
insufficient for forecasting stock, combination of fundamental analysis and technical analysis will have
more predicting power in stock return. Fundamental analysis is widely used by investors to forecast the
movement of stock price. It examines all the factors that will give an impact on the stock return
including micro and macroeconomic factors. The macroeconomic factors such as monetary policy,
inflation, unemployment rate, gross domestic product and etc. (Suzana, Sinisa & Zoran, 2013).
Technical Analysis
Technical analysis is a forecasting method to predict movement of stock price by using forecasting
techniques such as pattern recognition analysis and chart analysis without referring to economic or
fundamental analysis. (Murphy, 1999) There are some evidence that technical analysis has predictive
power on stock return. Brock, Lakonishok and LeBaron (1992) examined two trading rules which are
moving average and trading range break on the Dow Jones Industrial Index from 1897 to 1986. Based
on their finding, they stated that trading rules has predictive power. Another study in 1995,
Bessembinder and Chan found that the technical analysis has predictive power in the emerging markets
of Asian (Malaysia, Thailand, Taiwan, Hong Kong and South Korea). The finding of Bessembinder and
Chan has been supported by Metghalchi et al (2009) by apply moving average rules in Hong Kong,
Singapore, South Korea and Taiwan and get the same conclusion which is stock return can be predicted
by moving average rule. According to Lo, Mamaysky and Wang (2000), technical analysis provides
incremental information which can add value to the investment process and may have some practical
value. Nonparametric kernel regression has been used to recognize the technical pattern and extracting
nonlinear pattern from noisy data to identify regularizes in the time series of prices. They also suggested
that automated algorithms can be used to improve the technical analysis. In 2012, Metaghalchi, Chang
and Xavier studies the profitability of technical trading rules by using 9 technical indicators. A null
hypothesis of equality of the mean buy with mean sell days has been stated. They found that 58 out of
66 trading models reject the null hypothesis. Their finding provide evidence that there is a predictive
power of technical trading rule on stock.
Park and Irwin (2007) has studies on the profitability of technical analysis by reviewing previous
studies. The previous studies have divided into two group which are earlier studies up to 1988 and
modern studies 1988 until 2004. Both of the studies support predictive power of technical analysis.
However, for earlier studies there is profitability of technical trading strategies in foreign exchange
market and future market but not in stock market whereas for modern studies technical trading strategies
is profitable for stock market at least until the early of 1990. They also found that most of the empirical
studies has faced problem in testing procedure such as data snooping, ex post selection of trading rules
and difficult to estimate the risk and transaction cost. In 2006, Qi and Wu had further studied about the
profitability of technical trading rule. They evaluated the 2,127 technical trading rules by employing
reality check and the results showed that there are data-snooping biases, potential structure change
which made the evidence of trading rule probability becomes weaker in the most recent period. Thus,
they suggested that the foreign market becomes more efficient over time. In contrast, there are some

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studies that do not support predicting power of technical analysis. Hudson, Dempsey and Keasey (1996)
applied the trading rules in United Kingdom data and concluded that technical analysis has no predictive
power in stock return and do not produce return after deducting transaction costs. Coutts and Cheung
(2000) investigated moving average oscillator and trading break-out rules in Hang Seng Index on Hong
Kong stock exchange. Their finding showed that moving average oscillator and trading Break-out rules
fails to generate abnormal returns. Mckenzie (2007) studies the usefulness technical trading strategies to
forecast stock market movement in seventeen emerging market. He found that there is no useful
technical trading strategy to forecast stock market when applied to U.S. data. From his finding, market
condition which is depth of the market and trading volume are the factors that affect the predictive
power of trading rule. Lento, Gradojevic and Wright (2007) proposed that the technical analysis is not
profitable against Bollinger Bands indicators after deducting the transaction cost. Through the result, out
of 12 test, Bollinger Bands has profitable in only 2 tests and there is no superior performance exhibited.
Metghalchi, Chang and Marcucci (2008) examined the probability of getting profit from some moving
average trading rule in Swedish stock market from 1986 till 2004 period. The finding indicated that
moving average have predicting power. Although there are accounting data snooping problem and high
transaction cost, it can still outperform the buy and hold strategy.
However, an opposite result show in Karachi stock exchange market, Sohail and Jehanzeb (2015)
evaluated the performance of technical analysis by using moving average as a tool. They suggested that
the returns from technical analysis cannot outperform the returns from buy and hold strategy in Karachi
stock exchange due to the high transaction cost of technical analysis. Moreover, Bukhardi, Cai, Hudson
and Keasey (2005) studied the effect of size of the firm on technical trading rules. 33, 33, 34 companies
from financial time stock exchange (FSTE) 100, FTSE 250 and FTSE small cap in London exchange
had been selected randomly as stock data to analysis technical trading rules. The result suggested that
technical trading rules have higher predicting power in small capitalization company.
Fundamental Analysis vs Technical Analysis
Survey studies and empirical studies had been used to determine the credibility of fundamental analysis
and technical analysis in the previous literature. Liu and Mole (1998) conducted a questionnaire survey
on the use of fundamental and technical analyses by foreign exchange dealers in Hong Kong. Their
findings reveal that less than 85% of the respondents used both fundamental and technical to forecast
exchange rate movements. However, their result stated that technical analysis is slightly useful in
predicting turning point and forecasting trends compared to fundamental analysis. This result has been
supported by Oberlechner (2001). The importance of technical and fundamental analysis in forecasting
trend is verified. The result showed most of the traders use both analysis. Technical analysis is
preferable in short time horizon thus he suggested technical analysis may become more important over
the decades. Oppositely, Cohen, Kudryavtsev and Shlomit (2011) investigated the different approach
used by professional portfolio managers to amateur investors by using survey research. The finding
showed both of them use more frequently fundamental tools such as financial statement and
recommendation by analysists compared to technical when making investment decision. A survey on the
use of fundamental analysis and technical to forecast the movement of share price has conducted in 2011
by Venkatesh and Tyagi. They found that different approaches were used in different sectors.
Fundamental analysis has been used to construct a strategy portfolio in conventional industries such as
banking, cement, pharmacy and etc. while technical analysis has been used in modern sectors such as
entertainment, telecom, real estate and et al. Another finding stated that brokers relied on different
approaches in different time horizon (Kumar, Mohapatra &Sandhu, 2013). Technical analysis is used for
short time horizon whereas fundamental analysis is used for long time horizon.
Besides, empirical study is the second method. Moosa and Li (2001) investigated whether
fundamental or technical analysis is more effective in Chinese stock market by using time series and

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panel data. Based on the results obtained from time series regression, although it showed that mix results
for the effectiveness of fundamental trading and technical trading, effectiveness of technical trading is
more significant. Through panel regression, both technical and fundamental trading showed important
role in forecasting stock price. However, technical trading is more effective compared to fundamental
trading in Chinese stock market.
Fundamental analysis is able to perform at a higher caliber compared to technical analysis if a

low risk sample is used (Swart, 2011). The aim of the study is to observe the performance of
fundamental and technical trading rule on European government bonds' yield spread from 2000 till
2010. Fiscal factor, economy factor of current state, liquidity factor and international risk factor had
been used as the fundamental trading rule in the research. According to Bettman, Sault and Schultz
(2009), their finding proved that fundamental and technical analysis served as complements instead of
substitutes. Both can forecast the stock value well separately, but predicting power decreased when two
model is combined. On the other hand, Lee & Shih (2010) found that combined fundamental and
technical information can improve the technical momentum strategy and thus generates large return for
both of the growth and stock value. In another study by Neely, Tu, Rapach & Zhou (2010) compared the
predictive power of fundamental and technical trading rules by using out-of-sample tests for 1960-2008
in US equity premium. Their finding concluded that both of them are able to forecast gains which
provide statistical and economical significant and largely complementary to each other in recessions of
business cycle. There was different pattern in their performance in recession business cycle: fall in the
equity premium near business cycle peaks is recognized by technical rules while rise in equity premium
near business cycle troughs is recognized by fundamental rules. Suresh (2013) studied on fundamental
and technical analysis on stock return. She suggested that fundamental and technical analysis are highly
essential for investment decision. A similar study was conducted by Petrusheva and Jordanoski (2016),
they compared the differences between fundamental analysis and technical analysis on stocks. Based on
their comparison, they concluded that combining the fundamental analysis and technical analysis will
lead to optimum results on stock due to the fact that both analyses have their advantages and
disadvantages.
Efficient Market Hypothesis
Statisticians observed that stock prices seem to follow a fair game pattern in the past century which has
led to the random walk hypothesis. It was introduced by Louis Bachelier, a French mathematician in
1900. Random walk hypothesis stated that prices of equities are following a random walk and
unpredictable. In other words, changes of equities' price are independent of each other which means
future movement cannot have predicted by past movement or trend. Random walk hypothesis. Although
there were a few studies in the 1930's, random walk hypothesis is not well-known until it was being
studies and debated intensively in the 1960's. Therefore, it can be concluded that the efficient market
hypothesis strikes a similar understanding with the random walk hypothesis. Efficient Market
Hypothesis (EMH) stated that financial markets are efficient and stock prices are informational efficient.
According to Fama (1970), financial markets are considered efficient if the prices change rapidly with
new information and without bias. Stock prices are informational efficient when all relevant information
such as earning payment and future expectation as well is already built in to stock price. Efficient
Market Hypothesis suggested that stocks will always trade at their fair value on the stock exchange, it is
unlikely and difficult for an investor to outperform the market and get abnormal return in the stock
market. In this theory it suggests that there are no undervalued or overvalued stocks, thus there is no way
for investors to gain high return unless they invest in riskier investment. However, it has passionate
discussion, debated between challengers and proponents and the arguments are often unclear. Others
may have said that it is meaningless to forecast securities moving patterns in order to search for
undervalued or overvalued stock under the efficient market hypothesis by using fundamental and
technical analysis. Yet some successful analysts such as Warren Buffett, Peter Lynch and George Soros

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had consistently beaten the stock market over long period of time. (Clarke el al, 2011). There is some
assumption of efficient market which are;
 All relevant information can be obtained by investors easily

 All these information investors obtained can be used to analyze economy and financial market for
their investment decision
 Investors will get the information quickly when an event that give an impact of stock price
happen such as unpredictable events, labor strikes and major lawsuit happen.
 Investor always respond almost as soon as new information pops out.
Based on market efficiency, efficient market theory can be distinguishing into three versions
which are weak form, semi-weak form and strong form. In weak form of the efficient markets
hypothesis declares that the current price is only based on the market trading information of past history
such as stock price and trading volume (William 2016). Some theorists may think that efficient market
hypothesis still can be accepted to a certain extent. They proposed that it is impossible to forecast the
share prices and abnormal return. (Jeffery, 2010) In semi-strong level, it suggests that current price fully
incorporates with public information other than market data and past prices but also includes news,
financial statements of company, patents and et al. Although the information is more than weak- form
efficiency, abnormal return is still unable to be generated due to the information is already known by all
investors (Clarke el al, 2011). In strong level, it proposed that current price include all existing
information which not only public information, but also private information. Normally, the private
information is obtained from the corporate insider such as officers and executive of the corporation.
Thus, the corporate insiders can make abnormal return by trading their company's stock before the
information spread out. To avoid this from happening, Securities and Exchange Commission (SEC) has
banned insider trading (William, 2016).
Dow Theory
Dow Theory stated that when one of the averages (Dow Jones Industrial Average (DJIA) or Dow Jones
Transportation Average (DJTA)) increases, the counterpart tends to move up to the same level within a
time period. If this doesn't happen, the averages will be said to show 'divergence' and causes the market
to be subjected to reverse course. It is a form of technical analysis which is used to analyze market
behavior and stock price movement and includes some parts of sector variation. Dow Theory is
considered one of the earliest theories regarding technical analysis and it still serves as an initial basis to
many other technical indicators (Reilly & Keith, 2012). Charles H. Dow developed Dow Theory in 1900
but he did not manage to publish the complete theory due to his death in 1902. After his death, there are
several associates William Peter Hamilton, Robert Rhea and E. George Schaefe which further studied
the theory based on Dow's reviews and made most important contribution on Dow Theory. In order to
help investor, get a better understanding about the market environment, there are six basic tenets of Dow
Theory that investors need to know (Ray, 2012). There is an unusual history from perceptions of Dow
Theory for timing purchased. From this technique, a "breakthrough" of the stock on the upside signals
investors to buy and the "breakthrough" on the down side on the other hand signals investors to sell.
Dow Theory is used to calculate the estimated result and showed an almost steady series of profits in
operation from 1897 until 1960s. However, a closer study found that the quality of the theory had
changed drastically after 1938. From Benjamin' perspective, Although the results of the Dow Theory
show inherent characteristics of forecasting and trading formulae in both the business and finance field,
the changes are not accidental (Benjamin, 1984).

Vol. 1 No. 1 2018
RESEARCH MODEL AND METHODOLOGY
The Relationship between Fundamental Analysis and Stock

Fundamental indicators are useful to forecast the stock return. Previous studies have showed that there is
a relationship between fundamental analysis and stock return. In a study of Martani, Mulyono and
Khairurizka (2009), it is found that Fundamental factors which are profitability (net profit margin and
return on equity), total asset turnover and price to book value have a significant relationship with stock
return. However, the leverage and the size of the firm does not have significant relationship on stock
return. They applied the method on listed manufacturing companies on Indonesia stock market from year
2003 to 2006. There is a significant relationship between fundamental ratios and sock return in Tehran
stock market (Karami & Talaeei, 2013). The fundamental indicators which are price to earnings, book to
market value, dividend yield and capital gain were used in the study. The result shown that price to
earnings and book to market value has significant relationship with stock return. Muhammad and
Scrimgeour (2014) investigated the impact of fundamental analysis on measurement the stock return on
Australian stock market. Financial measure based (ROA, ROE, EPS, free cash flows and payout ratio)
and market based (P/E, Tobin's Q, market to book ratio, market value added and cash flow return on
investment) were used in the study. ROA and payout ratio have the most significant relationship with
stock return.
Wijesundera et al. (2015) proposed that there is a significant relationship between fundamental
analysis and stock return. They found that return on equity, earnings per share and book to market value is
positively related to stock return by using Ordinary least squares (OLS) techniques. Khotimah and
Murtaqi (2015) suggested that there is a significant relationship between fundamental analysis and stock
return. They use current ratio, book to market and total asset turnover as the fundamental indicators.
Based on their finding, current ratio is negatively correlated to stock return whereas book to market and
total asset turnover is positively related to stock return. Hassan, Farooq and Muddassin (2015) examined
the relationship between four fundamental indicators and stock return. They found that book to market
value of equity and sales to price has a positive significant relationship with stock return, whereas there is
a negative relationship between firm size and stock return. There is no significant relationship between
debt to equity and stock return.
Anwaar (2016) studied the impact of fundamental variables of firms on the stock returns. The
fundamental variables are earnings per share, quick ratio, return on assets, return on equity and net profit
margin. Based on his finding, net profit margin and return on assets have the positive significant
relationship with stock return whereas there is a negative relationship between earning per share and stock
return. However, return on equity and quick ratio do not have relationship with stock return. According to
Abardenell and Bushee (1997), macroeconomic variables may affect the correlation of fundamental
indicators and expected stock return such as inflation, unemployment rate, Gross Domestic Product
(GDP) and etc. Not only that, Seng and Hancock (2012) have found that contextual factors such as prior
earning news and industry, country incorporation and macroeconomic variables can influence the
predictive power of fundamental signals on stock price.
The Relationship between Technical Analysis and Stock
Ahmed, Beck and Goldreyer (2000) tested the efficiency of technical trading strategies in three Asian
market by using five different variable moving average trading models. Based on their finding, they
supported that the strong serial correlation among stock returns resulting from the effectiveness of trading
model gives the model the ability to forecast future stock returns Sehgal and Garhyan (2002) proposed
that generally technical analysis can produces positive significantly mean return in Indian capital market

Vol. 1 No. 1 2018
by using several technical indicators. On Balance Volume is the most powerful among others technical
indicators which can be used in different phase of the market (bull or bear). Metghalchi at el (2007)
applied two moving average technical trading rule in Austrian stock market to test the predictive power of
technical trading rule in forecasting stock market return. They found that moving average have stronger
predictive power which abnormal return can be generated and outperform buy and hold strategy.
Chong and Ng (2008) examined the effectiveness of technical analysis to produce excess return in
London stock exchange by using 60 years’ data. The result showed that Moving Average Convergence-
Divergence and Relative Strength Index are profitable which higher positive return can be generated
compared to buy and hold strategy. Hartono and Sulistiawan (2015) also suggested higher return can be
produced by using technical analysis compared to buy and hold strategies. Marshall, Qian and Young
(2009) studies the ability of technical analysis to generate profit on US stock by using moving average as
trading rule. They found that there is statistically significant relationship between technical analysis and
stock return which profit can be generated. He also suggested that it is more profitable for small cap and
less liquid stocks. Another study also proposed that positive significant return can be produced by using
technical analysis (moving average and relative strength as indicators) in Singapore (Wong, Manzur &
Chew, 2003) Swart (2011) studies the ability of technical analysis to generate risk-adjusted return by
using individual OLS, pooled OLS and FGLS panel estimation with time-fixed effect. Based on his
finding, he found that technical analysis and risk-adjusted return are positively related to each other, and
positive economic and significant risk-adjusted portfolio return can be generated. Ghobadi (2014)
suggested that there is a relationship between technical analysis and stock return. He found that technical
analysis can generate abnormal stock return. The technical indicators included stochastic oscillator,
relative strength index, commodity channel index and money flow index. The technical indicators
generated more return that London Interbank Offered Rate.
This study is a casual study which involves secondary data and a number of empirical techniques.
All the secondary data are obtained from International Financial Data Stream, Bursa Malaysia and World
Bank. There are 80 out of 85 manufacturing companies that provide sufficient information which listed in
Bursa Malaysia are being chosen as the sample. The sample company should provide sufficient
information on net profit margin, price earnings ratio, total asset turnover, moving average convergence
divergence and date of incorporation for each sample company in order to determine the credibility of the
fundamental analysis and technical analysis. The yearly data for the time period of year 2011 to 2015.
The regression test is carried out to analyze the relationship between the variables. Two multiple
regression model, one model is for fundamental analysis and another is for technical analysis is used to
determine the credibility of fundamental analysis and the technical analysis on stock return. There are
four types of independent variables in this study which are net profit margin, price earnings ratio, total
assets turnover and moving average convergence divergence. The stock return is the dependent variables.
Fundamental analysis- model (1)
Model (1) use to predict stock price for fundamental analysis can be written as functional relationship as
below
Pi, t = α + β1 NPM i, t-1 + β2 PE i, t-1 + β2 TAT i, t-1 + ℇ - (1)
Where,
P = Expected closing price of company
NPM = Net profit margin of company
PE = Price earnings ratio of company
TAT =Total assets turnover of company
α, β1, β2 = Mathematical coefficients

Vol. 1 No. 1 2018
ℇ = Randomized Errors
Technical Analysis - model (2)
The model (2) which is related to predict stock price is can be illustrate as following
Pi, t = α + β1 MACD i, t-1 + ℇ

Where,
P = Expected closing stock price for company
MACD = Price that retrieved from Moving average convergence divergence
α, β1, = Mathematical coefficients
ℇ = Randomized Errors
The symbols of i and t are the listed companies chosen and time dimension of the data
Hypothesis
Fundamental and technical analysis are used to forecast the stock return by using different approaches.
However, technical analysis is more effective and more reliable to predict the value of stock (Moosa &
Li, 2001). Thus, the hypothesis is proposed as below:
H1: There is a relationship between stock return and net profit margin.
H2: There is a relationship between stock return and price earnings ratio.
H3: There is a relationship between stock return and total asset turnover.
H4: Thereis a relationship between stock return and moving average convergence and divergence
(MACD).
H5: Technical analysis outperform fundamental analysis in concerning the stock return.
DATA ANALYSIS AND RESULTS
The empirical results and findings of the study of 80 Malaysia food manufacture industry listed
companies from the Main Market of Bursa Malaysia were being tested. The data period is from 2012 to
2016. There are few methods that used for empirical analysis which are descriptive statistic, Pearson
Correlation Coefficient, Panel Regression Analysis and Diagnostic Test. The most suitable panel
regression is determined.
Descriptive Statistics
The fundamental analysis showed that the mean of dependent variable stock return is 1.06 with the
standard deviation of 5.88. The minimum value is -11.65 while the maximum value is 103.39. This
indicates that an average of RM1.06 of stock return is able to be generated through the investment made
by investors. As the range value start from negative value, it reveals that investors might invest to some of
the companies which might have poor performance. Not only that, turmoil within a broad sector or the
economy and inflation might also reveal a negative return. One of the independent variable is net profit
margin. The mean value is 8.24 with a standard deviation of 129.76. The range of the value is from -1740
to 1612.68. The mean value indicates that all these listed companies in Bursa Malaysia has an average of
net profit margin of 8.24. The negative of the range value indicates that some of the companies might
experience losses. For price earnings ratio, the mean value is 16.10 with the standard deviation of 39.96.
The range is from 0 to 736.The mean value shows that investors are willing to invest for the company
stock in Bursa Malaysia with an average companies' earnings of RM 16.10. Lastly, the mean value of

Vol. 1 No. 1 2018
total asset turnover is 0.71. The range is from 0 to 5.33 with a standard deviation of 0.63. The mean value
reveals that RM0.71 revenues is generating through each ringgit's worth of asset of the companies.
The descriptive statistic of the stock return for technical analysis is same as the fundamental
analysis. The mean value is 1.06 with a standard deviation 5.88. The minimum value is started from
negative value which is -11.65. When investors invest into the company with poor management or factors
beyond its control, a negative return might occur. The independent variable for technical analysis is
moving average convergence and divergence (MACD). The mean value is 0.007 with standard deviation
0.04. The value is range from -0.13 to 0.58. The mean value indicates the relationship between two
moving averages price of listed companies in Bursa Malaysia which is at average of 0.007.
Pearson Correlation Coefficient
Table 1: Pearson Correlation between Dependent Variable and Independents Variables for
Fundamental Analysis
SR NPM PE TAT
SR 1.0000 - - -
NPM 0.0833 1.0000 - -
(0.0963)
PE -0.0129 0.0092 1.0000 -
(0.7977) (0.8546)
TAT 0.2327 -0.0184 -0.0133 1.00000
(0.0000) (0.7133) (0.7902)
The table 1 shows the Pearson Correlation between the stock return and the independent variable. There is
a weak negative relationship between price earnings ratio and stock return. Total asset turnover shows a
strong positive relationship with stock return whereas the net profit margin shows a weak positive
relationship with the stock return.
Table 2: Pearson Correlation between Dependent Variable and Independents Variables for
Technical Analysis
SR MACD
SR 1.0000 -
MACD 0.1199 1.0000
(0.0165)
Pearson correlation between dependent variable and independent variable is showed in table 2. It shows
that moving average convergence and divergence has a positive relationship with the stock return.

Vol. 1 No. 1 2018
Panel Regression Analysis and Diagnostic Test
Fundamental Analysis
Table 3: Results of Panel Data Analysis for Fundamental Analysis.
Pooled OLS Random Pooled OLS with

effects Robust Standard
Error
NPM 0.0040 0.0053 0.0039***
(0.072) (0.084) (0.061)
PE -0.0015 -0.0027 -0.0015
(0.829) (0.841) (0.554)
TAT 2.1803 2.1864 2.1803**
(0.000) (0.000) (0.042)
Constant -0.4916 -0.4936 -0.4916
(0.272) (0.291) (0.350)
Breusch-Pagan LM 0.00 -
test (1.00)
Observations 400 400 400
Multicollinearity 1.00 - -
(vif)
Heteroscedasticity 1.6e+06 - -
( x2-stat) (0.00)
Serial Correlation 10.006 - -
(F-stat) (0.0022)
Notes: SR = Stock return, NPM =Net profit margin, PE = Price earnings ratio (P/E Ratio),
TAT=Total Asset Turnover. Symbols (*, **, ***) show the statistical significance at various significant
levels (1%, 5%, 10%) respectively.
The panel data regression analysis for fundamental analysis of this study is showed in the table 3. The
result of Pooled OLS and RE model are showed in the table above. In order to choose the model that is
suitable for data used, Breusch and Pagan LM test has been carried out. The p-value for Breusch and
Pagan Lm test is 1.00 which is insignificant result to reject the H0. The result also shows that there is no
multicollinearity problem in Pooled OLS model. This is due to the value for mean VIF is 1.00 which is
less than 10. However, there is heteroscedasticity problem in the proposed Pool OLS model which shows
in the result. The p-value of the heteroscedasticity is 0.000 which is less than 0.05 (5% significant level).
This indicate that the variance for the error term is not constant. Moreover, the p-value of the serial
correlation test is 0.002 which is less than 0.05 (5% significant level). It reveals that there is also
autocorrelation problem in the proposed Pooled OLS model. As a result, the Pooled OLS with robust
standard error was used as final regression model to correct the uneven variance of error term as there is
heteroscedasticity and autocorrelation problem detected from the diagnostic check

Vol. 1 No. 1 2018
Technical Analysis
Table 4: Results of Panel Data Analysis for Technical Analysis.
Pooled OLS Random Pooled OLS with

effects Robust Standard
Error
MACD 17.5398 17.5472 17.5378**
(0.016) (0.021) (0.015)
Constant 0.9493 0.9581 0.9493
(0.001) (0.003) (0.000)
Breusch-Pagan 0.00 -
LM (1.00)
test
Observations 400 400 400
Multicollinearity 1.00 - -
(vif)
Heteroscedasticity 8.6e+06 - -
( x2-stat) (0.000)
Serial Correlation 138.016 - -
(F-stat) (0.0000)
Notes: SR = Stock return, MACD = Moving Average Convergence Divergence, The symbols (*, **, ***)
show the statistical significance at various significant levels (1%, 5%, 10%) respectively.
The table 4 above shows the panel data regression analysis for technical analysis of this study.
In order to determine the relationship between stock return and moving average convergence and
divergence, Pooled Ordinary Least Square (Pooled OLS) model and Random Effect (RE) model are
implies in this study. Breusch and Pagan LM test is used to choose the more suitable model between
Pooled OLS and RE model. The result shows that the Pooled OLS model is more suitable than RE
model. This is due to the p-value for Breusch and Pagan LM test is 1.00 which is statistically
insignificant. Therefore, Pooled OLS model has been chosen. Since Pooled OLS model is selected, there
might have some multicollinearity, heteroscedasticity and autocorrelation problems exist. Therefore,
diagnostic checks are carried out to detect the problem in order to maintain the robustness and validity of
data. The value for mean VIF is 1.00 which is less than 10. This indicates that there is no
multicollinearity problem in Pooled OLS model. Furthermore, the p-value of the heteroscedasticity is
0.000 which is less than 0.05 (5% significant level). There is statistically significant result show that
there is heteroscedasticity problem in the proposed Pool OLS model. This might due to the non-constant
of variance of error term. Furthermore, the result shows that there is autocorrelation problem in the
proposed Pooled OLS model as the p-value of the serial correlation test is 0.000 which is less that 0.05
(5% significant level). Since there is heteroscedasticity and autocorrelation problem detected in the
proposed Pooled OLS model, Pooled OLS with robust standard error was used to precise the uneven
variance of error term. Therefore, the Pooled OLS with robust standard error is selected as the final
regression model. The p-value for moving average divergence convergence is 0.015 which is lower than
0.05 (5% significant level) which shows statistically significant positive relationship between stock
return and moving average convergence and divergence. The coefficient of MACD is 17.5378 which
determines that moving average divergence and convergence of the picked stock(s) by investors increase
by 17.5378 unit will increase stock return of investors by 1 unit.

Vol. 1 No. 1 2018
Fundamental analysis vs Technical analysis
Table 5: Fundamental Analysis vs Technical Analysis
Fundamental Analysis Technical Analysis

R-squared 0.0619 0.0144
Adj. R-squared 0.0548 0.0119
Sum squared residual 12928.6957 13584.1132
Root mean squared error 5.7139 5.8422
Probability (F test) 0.0890*** 0.0154**
The table 5 above show the comparison of result between fundamental analysis and technical analysis.
The probability of F test in both model get a high degree of precision at significance levels of 10% which
verifies that both models are predictable. Besides, R- squared and adj. R-squared for fundamental analysis
is 0.0619 and 0.0548 respectively whereas for technical analysis is 0.0144 and 0.0119. Both value for
fundamental analysis is higher than technical analysis which indicates that fundamental analysis is
slightly superior over the technical analysis. Besides that, the S.E of regression and the value of sum
squared residuals for fundamental analysis model is lesser than technical analysis model. These results
show the technique of fundamental analysis is slightly superior over technical analysis in the food
manufacturing sector.
Hypothesis results
Table 6: Hypotheses Results
Hypotheses Action
H1: There is a relationship between stock return and net profit margin. Fail to accept
H2: There is a relationship between stock return and price earnings ratio. Fail to accept
H3: There is a relationship between stock return and total asset turnover. Accepted
H4: There is a relationship between stock return and moving average Accepted
convergence and divergence (MACD).
H5: Technical analysis outperform fundamental analysis in concerning Fail to accept
the stock return
There are many investors that make use of fundamental analysis to assess the situation of a company
whether it is worth to invest so that they could generate profit from their investment. By using
fundamental analysis, investors could yield a positive result. From the table 6, it shows that H3 do not
have enough evidence to be accepted while H1 and H2 were failed to accept. Firstly, the empirical result
showed that the total asset turnover has the significant positive relationship with the stock return. Total
asset turnover ratio is one of the efficiency ratio that use to measures the efficiency of a company use its
asset to generate sales. Higher total asset turnover ratio indicates the better the company is performing
which can give a positive effect on stock return. According to a study of Alexis, Patra and Poshakwale
(2010), asset turnover is positively related to stock return by using panel data analysis whereas the net
profit margin is insignificant to stock return. Not only that, Khotimah and Murtaqi (2015) stated total
asset turnover has impact on stock return as the good management of companies' assets to generate

Vol. 1 No. 1 2018
revenue result in higher return. This is due to the fact that the greater performance of a company, the
higher stock price which result in greater stock return.
Besides, the price earnings ratio helps investors to analyze how much they should pay for a stock
based on current earnings. Price earnings ratio can be used to compare the relative earnings power of the
companies and it also reflect the expectation of the market concerning the future performance of the
stock. Although it is insignificant in this study, but it shows a negative relationship toward stock return
which means the lower the PE ratio, the higher the stock return. This has supported by the study of
Campbell and Shiller (1998), they found that the PE ratio was negatively corrected with the stock price.
This is due to a stock with high PE ratio may be overpriced, investors need to pay more for the stock, thus
lower stock return. According to the study of Gacheri (2014), the empirical result showed that there is no
significant relationship between stock return and price earnings ratio. From the findings of Tripathi
(2008), he also proposes that there is no relationship between price earnings ratio and stock return. Last
but not least, the net profit ratio is one of the profitability ratio which show financial efficiency of a
company. Net profit margin can be used to measure of the overall success of a business as it can subject
to a variety of issues such as leveraged situations, accounting compliance, short term focus and etc. In this
study, net profit margin shows a positive relation towards stock return while price earnings ratio shows a
negative relation towards stock return. Although both variables are not significant in this study, it still has
the predictive power on stock return. It is due to different countries and different sectors might propose
different result of fundamental indicators on the stock return. From the study of Dita and Murtaqi (2014),
their findings show that net profit margin has positive significant impacts to the stock return in Indonesian
customer goods industry. However, Chan, Yap and Asri (2012) stated that there is no significant
relationship between stock return and net profit margin in Malaysia property sector.
Fundamental analysis involves variety of aspect to assess a company such as revenue, expenses,
liabilities, asset and other financial aspects of a company which can help investors to evaluate the
company before making an investment decision (Nadeem, Sajid & Muhammad, 2013). Most of the
fundamental analysts look at this information to evaluate the performance of the company and also gain
insight on its future performance. Thus, fundamental indicators are useful to forecast the price movement
and generate positive return.
For technical analysis, the result shown in table 6 revealed that H4 have enough evidence to be
accepted where moving average convergence and divergence is statistically significant to stock return at
5% significant level and shows a positive relationship with stock return. Nowadays, technical analysis is
widely used by investors especially for investors who like to invest in short term investment. There are
lots of technical indicators such as stochastic oscillator, relative strength index and etc. According to the
study of Swart (2011), he suggests that there is a positive relationship between the risk-adjusted return
and technical analysis. Wafi (2015) also proposes that technical analysis can be used to forecast stock
return performances and generate positive return. Besides, from the study of Chong and Ng (2008), they
stated that moving average convergence and divergence can be used to generate stock return. Technical
analysts differ from fundamental analysts, they only focus on the market trend by using technical
indicators to forecast the future stock price and movement instead of analyze the intrinsic value of the
stock (Suresh, 2013). Technical analysis gives the signal to investors to enter the market in the right time
to buy or sell stock in to gain the maximum profit.
The empirical results have proven that both analysis are able to predict stock return and generate
positive return. However, from the table 6 above, it shows that the H5 is rejected which indicate technical
analysis did not outperform fundamental analysis.

Vol. 1 No. 1 2018
CONCLUSION
The Investors always questions about which technique is the best, fundamental analysis or technical
analysis in order to gain the maximum profit from their investment. Both analysis is used to forecast stock
return by using different approach (Murphy, 1999). From the study of Cohen, Kudryavtsev and Shlomit
(2011) proposed that most of the professional portfolio managers to amateur investors use more
frequently fundamental indicators compared to technical when making investment decision. This has
proven that the fundamental analysis is useful to generate positive return. Besides, Fundamental analysis
is able to perform at a higher caliber compared to technical analysis if a low risk sample is used (Swart,
2011). In this study, it stated that technical analysis did not outperform fundamental analysis. However,
the result of this study contrast with the study of Needly (2010), Moosa & Li (2011) and also Wafi
(2015). Based on their findings, they stated that technical analysis is more effective compared to
fundamental analysis. This might due to the fact that different sectors and country used will show
different results. According to Venkatesh & Tyagi (2011), they found that different approach was used in
different sectors. Fundamental analysis has been used to strategy portfolio in conventional industries such
as banking, cement, pharmacy and et al while technical analysis has been used in modern sectors such as
entertainment, telecom, real estate and et al. Moreover, Oberlechner (2001) proposed that technical
analysis is preferable in short time horizon whereas fundamental analysis is more suitable for long time
period. This showed that time period will affect the result of the study also. Nevertheless, according to
Suresh (2013), she suggested fundamental and technical analysis both of them are important to make
investment decision although both of them using different method to forecast the stock return.
Furthermore, Petrusheva and Jordanoski (2016) concluded that fundamental analysis and technical
analysis have their advantages and disadvantages, therefore combined both analysis will lead to optimum
results on stock.
In conclusion, both analysis is useful in helping investors to generate positive return. However,
there is no better way in deciding which approach is better as the reliability of both analysis depends on
the occasion. There is some limitation of this study where the data gained is only from food
manufacturing sectors in the main market of Bursa Malaysia from 2012 to 2016. The restriction of the
sectors and the country may cause the result of this study different from other studies. On top of that, the
time period involved for this study is only 5 years which may affect the inaccuracy of the data. Lastly,
there are lots of indicators for fundamental analysis and technical analysis. However, there are only three
indicators and one indicators respectively used in this study which may cause insufficient factors in
explaining the relationship towards stock return. The precision in comparison between the two models
may be affected also. There is some suggestion for future research can be done in other industries instead
of only focusing on food manufacturing industry. This is due to different industries may proposed
different results on credibility on fundamental analysis and technical analysis. Furthermore, the number of
sample and the time period can be increased in order to improve the reliability of the study. The number
of indicators for both analyses can be increased as there are many types of indicators. By adding more
indicators, not only can increase the accuracy of the data, the relationship towards stock return can be
explained sufficiently also. Accuracy and usefulness of the indicators chosen can be tested by using out of
sample given. Lastly, the forecast models for fundamental analysis and technical analysis can be added in
the further study to increase the credibility of the study in comparing the predicting power of both model.
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Corresponding Author: Shaharudin Jakpar can be contacted at jshaharudin@unimas.my

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UNIMAS Review of Accounting and Finance

Vol. 1 No. 1 2018

© 2018 UNIMAS All Rights Reserved Page | 38

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Figure 1: Share Price Performance vs FBM KLCI

Source: Bursa Malaysia Annual Report 2015

Source: Yahoo Finance 2016

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 All relevant information is discounted and already price-in in stock price

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Fundamental Analysis vs Technical Analysis

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Fundamental analysis is able to perform at a higher caliber compared to technical analysis if a

Efficient Market Hypothesis

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 All relevant information can be obtained by investors easily

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The Relationship between Fundamental Analysis and Stock

The Relationship between Technical Analysis and Stock

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Fundamental analysis- model (1)

Pi, t = α + β1 NPM i, t-1 + β2 PE i, t-1 + β2 TAT i, t-1 + ℇ - (1)

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Technical Analysis - model (2)

Pi, t = α + β1 MACD i, t-1 + ℇ

DATA ANALYSIS AND RESULTS

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Pearson Correlation Coefficient

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Table 3: Results of Panel Data Analysis for Fundamental Analysis.

Pooled OLS Random Pooled OLS with

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Table 4: Results of Panel Data Analysis for Technical Analysis.

Pooled OLS Random Pooled OLS with

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Table 5: Fundamental Analysis vs Technical Analysis

Fundamental Analysis Technical Analysis

Table 6: Hypotheses Results

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Corresponding Author: Shaharudin Jakpar can be contacted at jshaharudin@unimas.my

© 2018 UNIMAS All Rights Reserved Page | 61

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