True performance of market timing with simple moving average

Abstract

In this paper we investigate the performance of the market timing strategy basedon Simple Moving Average (SMA), looking at its performance when tested both inand out-of-sample. We examine whether or not its popularity is a result of theinherent flaws of in-sample testing or if its based on actual superiority. We find thatthe SMA strategy outperforms the market only when tested in-sample, and thatthere are too many uncertain factors to be able to conclude that it is effective whentested out-of-sample. As such, we do not find evidence of the SMA strategyconflicting with the efficient market hypothesis.