THE MOVING AVERAGE: An Analysis of the Profitability of the 50-Day and 200-Day Moving Average Trading Rule in Different Market Conditions

ECU Author/Contributor (non-ECU co-authors, if there are any, appear on document)

Tim Bunten (Creator)

Institution

East Carolina University (ECU )

Web Site: http://www.ecu.edu/lib/

Abstract: In this paper, I am analyzing the profitability of the 50- and 200-day moving average technical trading rule in different market conditions. I use SAS Statistical Analyses Software to\nanalyze all non-financial stocks in the U.S. stock exchanges over the time period 2005-2010. I conduct the parametric t-test, Wilcoxon non-parametric test and multiple regressions to evaluate the statistical significance of the difference in profitability of the moving average trading rule\nbetween three different time periods: pre-crisis, crisis, and post-crisis. I find that profitability when using the moving average technical trading rule was significantly higher in the pre-crisis\nperiod than in the crisis and post-crisis period. The profitability was especially lowest during the crisis period. This implies that the moving average technical indicator should be avoided in bear\nmarkets. The results hold in multiple regressions in control for Fama-French 4 factors and industry fixed effects. Furthermore, long positions based upon the moving average technical\nindicator generated the highest returns in the before-crisis period while short positions did in the crisis period. The differences in the profitability between the three periods also vary significantly\nbetween firm market capitalization deciles. My study builds on past studies in the field and expands the current literature on how profitability accrued to technical trading rules can vary\nacross different market conditions.

Additional Information

Publication

Thesis

Language: English

Date: 2023

Subjects

Technical indicators;moving average;trading rules;profitability;finance

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