Profitability of the Moving Average Strategy and the Episodic Dependencies: Empirical Evidence from European Stock
AbstractNumerous recent studies are emphasizing the existence of different stock price behaviors, namely long random walk sub periods alternating with short ones characterized by strong linear and/or nonlinear correlations. All these studies suggest that these serial dependencies have an episodic nature. In this paper we investigate the profitability of an optimum moving average strategy selected from 15,000 combinations on the main European capital markets considering the episodic character of linear and/or nonlinear dependencies, the period under study being 1997-2008. The empirical results are consistent the assumptions made by the Adaptive Markets Hypothesis (AMH) of Lo (2004) regarding the fact that profit opportunities do exist from time to time. More than that, the paper proves that the profitability of those strategies is mainly due to nonlinear episodic dependencies.
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Bibliographic InfoArticle provided by European Research Studies Journal in its journal European Research Studies Journal.
Volume (Year): XII (2009)
Issue (Month): 1 ()
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Nonlinear dependence; Bi-correlation; Market Efficiency; Technical Analysis.;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
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