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Simple Market Timing with Moving Averages

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Ilomäki, Jukka and Laurila, Hannu and McAleer, Michael (2018) Simple Market Timing with Moving Averages. [ Documentos de Trabajo del ICAE; nº 14, 2018, ISSN: 2341-2356 ] (Unpublished)

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Abstract

Consider using the simple moving average (MA) rule of Gartley (1935) to determine when to buy stocks, and when to sell them and switch to the risk-free rate. In comparison, how might the performance be affected if the frequency is changed to the use of MA calculations? The empirical results show that, on average, the lower is the frequency, the higher are average daily returns, even though the volatility is virtually unchanged when the frequency is lower. The volatility from the highest to the lowest frequency is about 30% lower as compared with the buy-and-hold strategy volatility, but the average returns approach the buy-and-hold returns when frequency is lower. The 30% reduction in volatility appears if we invest randomly half the time in stock markets and half in the risk-free rate.


Item Type:Working Paper or Technical Report
Additional Information:

For financial support, the third author acknowledges the Australian Research Council and the Ministry of Science and Technology (MOST), Taiwan.

Uncontrolled Keywords:Market timing; Moving averages; Risk-free rate; Returns and volatility.
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > Stock exchanges
JEL:G32, C58, C22, C41, D23
Series Name:Documentos de Trabajo del ICAE
Volume:2018
Number:14
ID Code:48450
Deposited On:03 Jul 2018 10:18
Last Modified:03 Jul 2018 10:18

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