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Simple Market Timing with Moving Averages

Jukka Ilomaki (), Hannu Laurila () and Michael McAleer
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Jukka Ilomaki: University of Tampere, Finland
Hannu Laurila: University of Tampere, Finland

No 18-048/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

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.

Keywords: Market timing; Moving averages; Risk-free rate; Returns and volatility (search for similar items in EconPapers)
JEL-codes: G32 C58 C22 C41 D23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
Date: 2018-05-18
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