Efficiency of moving average strategies in developed and emerging country stock markets

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School of Business | Master's thesis
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Moving averages are a popular type of technical analysis that attempt to predict the direction of future security price movements based on historical trends. In this thesis I analyze the returns from three popular moving average strategies: simple moving average (SMA), exponential moving average (EMA) and moving average convergence-divergence (MACD). I use a sample of 22 developed country stock markets and 24 emerging country stock markets over the period 2010-2022. The results show that the strategies with the shortest moving average periods generate the best results in all samples and after adjusting for transaction costs. All strategies studied are less risky than the buy-and-hold benchmark and the risk-adjusted returns are consistently better than unadjusted returns relative to the buy-and-hold benchmark. The returns of all strategies analyzed are significantly greater in the emerging country sample than in the developed country sample. The best-performing strategy, MACD (12,26,9), generates an average excess annual return over the buy-and-hold benchmark of -1.91% in the developed country sample and 2.32% in the emerging country sample. In risk-adjusted terms, the same strategy generates a positive alpha in 12/22 developed countries and in 22/24 emerging countries. The MACD (12,26,9) Sharpe ratios are greater than the buy-and-hold benchmark in 7/22 and 22/24 countries in the developed and emerging country samples respectively. The break-even transaction costs for all strategies in all subsamples range from 0.0031% to 0.2057% per trade.
Thesis advisor
Torstila, Sami
moving average, market efficiency, technical analysis, emerging markets, developed markets, stock market
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