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Theoretical and practical motivations for the use of the moving average rule in the stock market
- Source :
- IMA Journal of Management Mathematics. 31:117-138
- Publication Year :
- 2019
- Publisher :
- Oxford University Press (OUP), 2019.
-
Abstract
- This paper provides some theoretical foundations for using moving average (MA) rules in the stock market. In particular, the paper analyzes the conditional probability of price increments and examines how this probability varies over time. We prove under certain assumptions that the probability of being in an uptrend is greater than the probability of being in a downtrend. This demonstration partially justifies the common use of MA rules in the stock market. Finally, we propose an ex-post empirical analysis to evaluate and compare the performance of some MA rules and other portfolio strategies in the US stock market. In this context, we also suggest a methodology that incorporates these trading rules as alarm rules to predict potential market failures. Our ex-post results confirm the advantages of using these trading rules to predict market trends and crises.
- Subjects :
- Settore SECS-S/06 - Metodi mat. dell'economia e Scienze Attuariali e Finanziarie
050208 finance
Applied Mathematics
Strategy and Management
05 social sciences
Conditional probability
Context (language use)
Management Science and Operations Research
Alarm signal
Management Information Systems
ALARM
Moving average
Modeling and Simulation
0502 economics and business
Econometrics
Economics
Systemic risk
Portfolio
Stock market
050207 economics
General Economics, Econometrics and Finance
Subjects
Details
- ISSN :
- 14716798 and 1471678X
- Volume :
- 31
- Database :
- OpenAIRE
- Journal :
- IMA Journal of Management Mathematics
- Accession number :
- edsair.doi.dedup.....df7b1c42de9ec41fbbb49c9a64dddb97