Market Timing with Moving Averages

39 Pages Posted: 21 Feb 2023

See all articles by Paskalis Glabadanidis

Paskalis Glabadanidis

Essential Services Commission of South Australia

Multiple version iconThere are 5 versions of this paper

Date Written: April 15, 2015

Abstract

I present evidence that a moving average (MA) trading strategy has a greater average return and skewness as well as a lower variance compared to buying and holding the underlying asset using monthly returns of value-weighted US decile portfolios sorted by market size, book-to-market, and momentum, seven international markets as well as 18,000 individual US stocks. The MA strategy generates risk-adjusted returns of 3% to 7% per year after transaction costs. The performance of the MA 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 default premium, can explain some of the abnormal returns. Standard market timing tests reveal ample evidence regarding the timing ability of the MA strategy.

Keywords: market timing, security selection, moving average, technical analysis, conditional models

JEL Classification: G11, G12, G14

Suggested Citation

Glabadanidis, Paskalis, Market Timing with Moving Averages (April 15, 2015). Available at SSRN: https://ssrn.com/abstract=4360950 or http://dx.doi.org/10.2139/ssrn.4360950

Paskalis Glabadanidis (Contact Author)

Essential Services Commission of South Australia ( email )

Level 1, 151 Pirie Street
Adelaide, SA 5001
Australia

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