A new white paper is here. Abstract is below.
Abstract:
I present evidence that a moving average trading strategy dominates buying and holding the underlying asset in a mean-variance sense using monthly returns of value-weighted decile portfolios sorted by market size, book-to-market cash-flow-to-price, earnings-to-price, dividend-price, short-term reversal, medium-term momentum, long-term reversal and industry. The abnormal returns are largely insensitive to the four Carhart (1997) factors and produce economically and statistically significant alphas of between 10% and 15% per year after transaction costs. This performance is robust to different lags of the moving average and in subperiods while investor sentiment, liquidity risks, business cycles, up and down markets, and the default spread cannot fully account for its performance. The substantial market timing ability of the moving average strategy does not appear to be the main driver of the abnormal returns.
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Thanks for the link Wood; always interested in this stuff. Another view of moving averages is given in a German working paper where they make the claim (I think; the writing is really convoluted and I’m still reading it) that MA systems rely on different statistics from bull to bear markets. http://www.frankfurt-school.de/dms/publications-cqf/CPQF_Arbeits29.pdf
Thanks Bozo! Glad to see that its not written in German. I’ll take a look at it.
Yes, if you can help decipher it that would be great 🙂
I think they are saying that bull and bear markets have different statistical regimes, and moving average systems take advantage of these differences (without actually adding value). But I’m not sure I like their use of bootstrapping.
The lit review is a good read on your article.