Abstract

http://ssrn.com/abstract=2242795
 
 

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The Real-Life Performance of Market Timing with Moving Average and Time-Series Momentum Rules


Valeriy Zakamulin


University of Agder - Faculty of Economics

November 8, 2013


Abstract:     
In this paper we revisit the myths about the superior performance of the market timing strategies with moving average and time-series momentum rules. These active timing strategies are very appealing to investors because of their extraordinary simplicity and because they promise substantial advantages over their passive counterparts (see, for example, the paper by M. Faber (2007) ``A Quantitative Approach to Tactical Asset Allocation" published in the Journal of Wealth Management). However, ``too good to be true" reported performance of these market timing rules raises a legitimate concern whether this performance is realistic and whether the investors can hope that the expected future performance will be the same as the documented historical performance. We argue that the reported performance of market timing strategies usually contains a considerable data-mining bias and ignores important market frictions. In order to deal with these issues, we perform out-of-sample tests of these two timing models where we account for realistic transaction costs. Our findings reveal that at best the real-life performance of the market timing strategies is only marginally better than that of the passive counterparts.

Number of Pages in PDF File: 35

Keywords: technical analysis, market timing, simple moving average, time-series momentum, out-of-sample testing, bootstrap simulation

JEL Classification: G11, G17

working papers series


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Date posted: April 3, 2013 ; Last revised: November 8, 2013

Suggested Citation

Zakamulin, Valeriy, The Real-Life Performance of Market Timing with Moving Average and Time-Series Momentum Rules (November 8, 2013). Available at SSRN: http://ssrn.com/abstract=2242795 or http://dx.doi.org/10.2139/ssrn.2242795

Contact Information

Valeriy Zakamulin (Contact Author)
University of Agder - Faculty of Economics ( email )
School of Management
Service Box 422
Kristiansand, N-4604
Norway
+47 38141039 (Phone)
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