Time Series Momentum Trading Strategy and Autocorrelation Amplification

K. J. Hong and S. Satchell

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This article assumes general stationary processes for prices and derives the autocorrelation function for a general Moving Average (MA) trading rule to investigate why this rule is used. The result shows that the MA rule is popular because it can identify price momentum and is a simple way of tracing and exploiting price autocorrelation structure without necessarily knowing its precise structure. We focus on analyzing the impact of price momentum on the profitability of the MA rule because the price momentum effect tends to be stronger and more persistent than the return momentum effect.

Date: 2013-06-18
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1322

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