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Moving average distance as a predictor of equity returns

Author

Listed:
  • Doron Avramov
  • Guy Kaplanski
  • Avanidhar Subrahmanyam

Abstract

The distance between short‐ and long‐run moving averages of prices (MAD) predicts future equity returns in the cross section. Annualized value‐weighted alphas from the accompanying hedge portfolios are around 9%, and the predictability goes beyond momentum, 52‐week highs, profitability, and other prominent anomalies. MAD‐based investment payoffs survive reasonable trading costs faced by institutions, and are stronger on the long side relative to the short counterpart.

Suggested Citation

  • Doron Avramov & Guy Kaplanski & Avanidhar Subrahmanyam, 2021. "Moving average distance as a predictor of equity returns," Review of Financial Economics, John Wiley & Sons, vol. 39(2), pages 127-145, April.
    • Handle: RePEc:wly:revfec:v:39:y:2021:i:2:p:127-145
    DOI: 10.1002/rfe.1118
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    2. Abudy, Menachem Meni & Kaplanski, Guy & Mugerman, Yevgeny, 2024. "Market timing with moving average distance: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 97(C).

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