Re-examining the Profitability of Moving Average Rules in Various Financial Markets

Abstract

Previous studies nd evidence both in favor and against the usefulness of the moving average (MA) strategies, while a nal conclusion is yet to be made. This thesis investigates the performance of MA strategies versus the passive buy-and-hold (BH) strategy, in the commodity, currency, stock and bond markets. To measure the outperformance, we simulate the out-of-sample returns to the MA strategies for all four nancial markets. Moreover, possibly for the rst time, we provide out-of-sample tests of the performance of MA strategies when a sell signal is a signal to short the underlying asset. In addition, we use a combination of many trading rules and MAs. Our ndings are that MA strategies statistically signi cantly outperform the BH strategy in the commodity markets, and seem to perform well in the currency markets. In the stock and bond markets, the MA strategies do not work well, and even underperform the BH strategy in some cases. For the MA strategies with short sales, we nd similar remarks regarding the outperformance, but the risk and mean returns are higher in general. Additionally, we observe that MA strategies rely on bear market states to outperform the BH strategy.