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Moving Average Distance as a Predictor of Equity Returns

Review of Financial Economics, Forthcoming

40 Pages Posted: 16 Feb 2018 Last revised: 1 Sep 2020

See all articles by Doron Avramov

Doron Avramov

Interdisciplinary Center (IDC) Herzliyah

Guy Kaplanski

Bar-Ilan University - Graduate School of Business Administration

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Financial Research Network (FIRN)

Date Written: May 22, 2018

Abstract

The distance between short- and long-run moving averages of prices (MAD) predicts future equity returns in the cross-section. Annualized value-weighted alphas from the accompanying hedge portfolios are around 9%, and the predictability goes beyond momentum, 52-week highs, profitability, and other prominent anomalies. MAD-based investment payoffs survive reasonable trading costs faced by institutions, and are stronger on the long side relative to the short counterpart.

Keywords: market efficiency, technical analysis, moving averages, crossing rules,anchoring bias

JEL Classification: G12, G14

Suggested Citation: Suggested Citation

Avramov, Doron and Kaplanski, Guy and Subrahmanyam, Avanidhar, Moving Average Distance as a Predictor of Equity Returns (May 22, 2018). Review of Financial Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3111334 or http://dx.doi.org/10.2139/ssrn.3111334

Doron Avramov

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

HOME PAGE: http://faculty.idc.ac.il/davramov/

Guy Kaplanski

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

Avanidhar Subrahmanyam (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Financial Research Network (FIRN)

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

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