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The profitability of the moving average strategy in the french stock market

The profitability of the moving average strategy in the french stock market. This paper studies the cross-sectional profitability of moving average timing portfolios in the French stock market over the period from January 1, 1995 to December 31, 2012. The results provide strong evidence that the moving average timing outperforms the buy-and-hold strategy with higher returns and less risk exposure. | Journal of Economics and Development, Vol.16, No.2, August 2014, pp. 21-38 ISSN 1859 0020 The Profitability of the Moving Average Strategy in the French Stock Market Hung T. Nguyen College of Business, Massey University, New Zealand National Economics University, Vietnam Email: nguyenthehung@neu.edu.vn Hang V. D. Pham Sobey School of Business, Saint Mary’s University, Canada National Economics University, Vietnam Hung Nguyen College of Business, Massey University, New Zealand University of Finance and Marketing, Ho Chi Minh City, Vietnam Abstract This paper studies the cross-sectional profitability of moving average timing portfolios in the French stock market over the period from January 1, 1995 to December 31, 2012. The results provide strong evidence that the moving average timing outperforms the buy-and-hold strategy with higher returns and less risk exposure. On average, moving average portfolios generate an abnormal return of 3.72% per annum and always perform better than buy-and-hold benchmark portfolios across different lag length and volatility portfolios. Moreover, our results prevail after we control for transaction costs. Keywords: Technical analysis, moving average, cross-sectional profit. Journal of Economics and Development 21 Vol. 16, No.2, August 2014 1. Introduction according to the survey of Taylor and Allen (1992). In addition, recent studies find strong evidence of the profitability of employing technical analysis (Brock, Lakonishok, and LeBaron, 1992; Hendrik Bessembinder and Kalok Chan, 1998; Lo, Mamaysky, and Wang, 2000; Todea, Zoicaş-Ienciu, and Filip, 2009; Vlad Pavlov and Stan Hurn, 2012). Especially, Han, Yang, and Zhou (2011) prove that the moving average timing strategy substantially outperforms a corresponding buy-and-hold strategy. Furthermore, Park and Irwin (2007) reviewed the evidence on the profitability of technical analysis in diversified markets since the early 1990s and report that a majority of modern studies .