Timing the Market with a Combination of Moving Averages

42 Pages Posted: 6 Sep 2017

See all articles by Paskalis Glabadanidis

Paskalis Glabadanidis

University of Adelaide Business School; Financial Research Network (FIRN)

Date Written: September 2017


A combination of simple moving average trading strategies with several window lengths delivers a greater average return and skewness as well as a lower variance and kurtosis compared with buying and holding the underlying asset using daily returns of value‐weighted US decile portfolios sorted by market size, book‐to‐market, momentum, and standard deviation as well as more than 1000 individual US stocks. The combination moving average (CMA) strategy generates risk‐adjusted returns of 2% to 16% per year before transaction costs. The performance of the CMA strategy is driven largely by the volatility of stock returns and resembles the payoffs of an at‐the‐money protective put on the underlying buy‐and‐hold return. Conditional factor models with macroeconomic variables, especially the market dividend yield, short‐term interest rates, and market conditions, can explain some of the abnormal returns. Standard market timing tests reveal ample evidence regarding the timing ability of the CMA strategy.

Suggested Citation

Glabadanidis, Paskalis, Timing the Market with a Combination of Moving Averages (September 2017). International Review of Finance, Vol. 17, Issue 3, pp. 353-394, 2017, Available at SSRN: https://ssrn.com/abstract=3032178 or http://dx.doi.org/10.1111/irfi.12107

Paskalis Glabadanidis (Contact Author)

University of Adelaide Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

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