Market Timing and Moving Averages


  • Pages: 192
  • Format: PDF
  • Published Date: 2015


Market Timing and Moving Averages: An Empirical Analysis of Performance in Asset Allocation

Market Timing and Moving Averages investigates the performance of moving average price indicators as a tactical asset allocation strategy. Glabadanidis provides a rationale for analyzing and testing the market timing and predictive power of any indicator based on past average prices and trading volume.


Technical analysis involves the use of past and current market price, trading volume, and, potentially, other publicly available information to try and predict future market prices. It is highly popular in practice with plentiful financial trading advice that is based largely, if not exclusively, on technical indicators.

The highlights of this study are the superior performance of the MA portfolios relative to buying and holding the underlying portfolios, the infrequency of trading and positive BETC, the fact that the switching strategy returns resemble an imperfect at-the-money protective put, and that cross-sectional differences are not a new anomaly as maintained in Han, Yang and Zhou (2013) but are due to volatility differences in the underlying portfolios and stocks.

An asset with 10% higher standard deviation of returns will experience on average between 1.6% and 3.5% mean return improvement between the buy-and-hold and the MA strategy. The returns of the MA strategy relative to the buy-and-hold strategy exhibit a lot of convexity and, hence, will be hard to explain using standard linear asset pricing models.

The anomalous risk-adjusted performance relative to standard models appears to be largely due to omitting market-timing factors in a simple piece-wise linear framework that captures the MA strategy’s convexity. Furthermore, the MA strategy appears to be antifragile in the sense of Taleb (2012), meaning that for securities with more volatile returns there is a greater improvement of the moving average returns relative to buy-and-hold returns.


  • Fundamental Versus Technical Analysis
  • Investment Performance
  • Performance Drivers
  • Performance Sensitivity
  • Individual Securities