Time series momentum and moving average trading rules. Issue 3 (4th March 2017)

• Record Type: Journal Article
• Authors: Marshall, Ben R.; Nguyen, Nhut H.; Visaltanachoti, Nuttawat
• Is Part Of: Quantitative finance. Volume 17:Issue 3(2017)
• Page Start: 405
• Page End: 421
• Publication Date: 2017-03-04
• Subjects: Technical analysis -- Time series momentum -- Moving average -- Return predictability; G11 -- G12; Finance -- Periodicals; Business mathematics -- Periodicals; Finance -- Mathematical models -- Periodicals; Investments -- Mathematics -- Periodicals; Economics -- Periodicals; Finances -- Modèles mathématiques -- Périodiques; 332.015118
• DOI: 10.1080/14697688.2016.1205209
• Languages: English
• ISSNs: 1469-7688

Abstract

Abstract : We compare and contrast time series momentum (TSMOM) and moving average (MA) trading rules so as to better understand the sources of their profitability. These rules are closely related; however, there are important differences. TSMOM signals occur at points that coincide with a MA direction change, whereas MA buy (sell) signals only require price to move above (below) a MA. Our empirical results show MA rules frequently give earlier signals leading to meaningful return gains. Both rules perform best outside of large stock series which may explain the puzzle of their popularity with investors, yet lack of supportive evidence in academic studies.