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An alternative methodological approach to assess the predictive performance of the moving average trading rule in financial markets: application to the london stock exchange

Author

Listed:
  • Alexandros E. Milionis

    () (Bank of Greece and University of the Aegean)

  • Evangelia Papanagiotou

    (University of the Aegean)

Abstract

In this work a modification of the Box-Tiao methodology for the assessment of the impact of external events on time series is proposed as an alternative statistical approach of assessing the predictive performance of the moving average trading rule in financial markets. With the proposed methodology measures of the predictive performance of the moving average trading rule can be simultaneously estimated, while at the same time controlling for autocorrelation in the series of asset returns. The potential advantages of the proposed methodology over the existing ones are discussed. Application of this alternative methodology to the returns of the FT30 Index of the London Stock Exchange shows good agreement with the empirical findings of other methods.

Suggested Citation

  • Alexandros E. Milionis & Evangelia Papanagiotou, 2009. "An alternative methodological approach to assess the predictive performance of the moving average trading rule in financial markets: application to the london stock exchange," Working Papers 107, Bank of Greece.
  • Handle: RePEc:bog:wpaper:107
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    File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper2010107.pdf
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    Cited by:

    1. Vasilis Droucopoulos & Panagiotis Chronis, 2010. "“Assessing market dominance”: a comment and an extension," Working Papers 109, Bank of Greece.

    More about this item

    Keywords

    Market Efficiency; Trading Rules; Moving Averages; Impact Assessment; Box-Tiao Models; London Stock Exchange.;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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