Market Timing and Moving Averages

Transcription

1 Market Timing and Moving Averages

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3 Market Timing and Moving Averages An Empirical Analysis of Performance in Asset Allocation PASKALIS GLABADANIDIS

4 MARKET TIMING AND MOVING AVERAGES Copyright Paskalis Glabadanidis, Softcover reprint of the hardcover 1st edition All right reserved. First published in 2015 by PALGRAVE MACMILLAN in the United States a division of St. Martins Press LLC, 175 Fifth Avenue, New York, NY Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN ISBN (ebook) DOI / Library of Congress Cataloging-in-Publication Data Glabadanidis, Paskalis. Market timing and moving averages : an empirical analysis of performance in asset allocation / Paskalis Glabadanidis. pages cm Includes bibliographical references and index. ISBN (alk. paper) 1. Technical analysis (Investment analysis) 2. Stock price indexes. 3. Portfolio management. I. Title. HG4529.G dc A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd., Chennai, India. First edition: July

5 To Z. because timing is everything.

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7 Contents List of Figures List of Tables Acknowledgments ix xiii xv 1 Fundamental Versus Technical Analysis 1 2 Investment Performance Profitability of MA Portfolios Performance Abnormal Returns Discussion Explanation 20 3 Performance Drivers Market Timing Business Cycles and Market States Conditional Models with Macroeconomic Variables 32 4 Performance Sensitivity Alternative Set-Ups Subperiods Alternative Lag Lengths Statistical Significance, Trading Intensity, and BETC Short-Selling Skipping a Period Zero Cash Rate Individual Securities Large-Cap US Stocks Mid-Cap US Stocks 160

8 viii Contents 5.3 Small-Cap US Stocks Summary for US Stocks Concluding Remarks 169 Notes 171 Bibliography 173 Index 177

9 Figures 2.1 Scatter plot of BH versus MA returns: Size decile portfolios Scatter plot of BH versus MA returns: Book-to-market decile portfolios Scatter plot of BH versus MA returns: Momentum decile portfolios Scatter plot of BH versus MA returns: Short-term reversal decile portfolios Scatter plot of BH versus MA returns: Long-term reversal decile portfolios Scatter plot of BH versus MA returns: Volatility decile portfolios Scatter plot of BH versus MA returns: Industry portfolios Cumulative returns of BH versus MA strategy: Size decile portfolios Cumulative returns of BH versus MA strategy: Book-to-market decile portfolios Cumulative returns of BH versus MA strategy: Momentum decile portfolios Cumulative returns of BH versus MA strategy: Short-term reversal decile portfolios Cumulative returns of BH versus MA strategy: Long-term reversal decile portfolios Cumulative returns of BH versus MA strategy: Volatility decile portfolios Cumulative returns of BH versus MA strategy: Industry portfolios Scatter plot of BH versus MA returns with short-selling: Size decile portfolios 94

10 x Figures 4.2 Scatter plot of BH versus MA returns with short-selling: Book-to-market decile portfolios Scatter plot of BH versus MA returns with short-selling: Momentum decile portfolios Scatter plot of BH versus MA returns with short-selling: Short-term reversal decile portfolios Scatter plot of BH versus MA returns with short-selling: Long-term reversal decile portfolios Scatter plot of BH versus MA returns with short-selling: Volatility decile portfolios Scatter plot of BH versus MA returns with short-selling: Industry portfolios Cumulative returns of BH versus MA strategy with short-selling: Size decile portfolios Cumulative returns of BH versus MA strategy with short-selling: Book-to-market decile portfolios Cumulative returns of BH versus MA strategy with short-selling: Momentum decile portfolios Cumulative Returns of BH versus MA strategy with short-selling: Short-term reversal decile portfolios Cumulative returns of BH versus MA strategy with short-selling: Long-term reversal decile portfolios Cumulative returns of BH versus MA strategy with short-selling: Volatility decile portfolios Cumulative returns of BH versus MA strategy with short-selling: Industry portfolios Scatter plot of BH versus MA returns with skipping a day: Size reversal decile portfolios Scatter plot of BH versus MA returns with skipping a day: Book-to-market reversal decile portfolios Scatter plot of BH versus MA returns with skipping a day: Momentum reversal decile portfolios Scatter plot of BH versus MA returns with skipping a day: Short-term reversal decile portfolios Scatter plot of BH versus MA returns with skipping a day: Long-term reversal decile portfolios Scatter plot of BH versus MA returns with skipping a day: Volatility decile portfolios 128

11 Figures xi 4.21 Scatter plot of BH versus MA returns with skipping a day: Industry portfolios Cumulative returns of BH versus MA strategy with skipping a day: Size decile portfolios Cumulative returns of BH versus MA strategy with skipping a day: Book-to-market decile portfolios Cumulative returns of BH versus MA strategy with skipping a day: Momentum decile portfolios Cumulative returns of BH versus MA strategy with skipping a day: Short-term reversal decile portfolios Cumulative returns of BH versus MA strategy with skipping a day: Long-term reversal decile portfolios Cumulative returns of BH versus MA strategy with skipping a day: Volatility decile portfolios Cumulative returns of BH versus MA strategy with skipping a day: Industry portfolios Scatter plot of BH versus MA returns with a zero cash rate: Size decile portfolios Scatter plot of BH versus MA returns with a zero cash rate: Book-to-market decile portfolios Scatter plot of BH versus MA returns with a zero cash rate: Momentum decile portfolios Scatter plot of BH versus MA returns with a zero cash rate: Short-term reversal decile portfolios Scatter plot of BH versus MA returns with a zero cash rate: Long-term reversal decile portfolios Scatter plot of BH versus MA returns with a zero cash rate: Volatility decile portfolios Scatter plot of BH versus MA returns with a zero cash rate: Industry portfolios Cumulative returns of BH versus MA strategy with a zero cash rate: Size decile portfolios Cumulative returns of BH versus MA strategy with a zero cash rate: Book-to-market decile portfolios Cumulative returns of BH versus MA strategy with a zero cash rate: Momentum decile portfolios Cumulative returns of BH versus MA strategy with a zero cash rate: Short-term reversal decile portfolios 153

12 xii Figures 4.40 Cumulative returns of BH versus MA strategy with a zero cash rate: Long-term reversal decile portfolios Cumulative returns of BH versus MA strategy with a zero cash rate: Volatility decile portfolios Cumulative returns of BH versus MA strategy with a zero cash rate: Industry portfolios Relative performance of BH and MA strategies with large-capitalization US stocks Market timing coefficients of MA strategies with large-capitalization US stocks Abnormal returns of MA strategies with large-capitalization US stocks Relative performance of BH and MA strategies with mid-capitalization US stocks Market timing coefficients of MA strategies with mid-capitalization US stocks Abnormal returns of MA strategies with mid-capitalization US stocks Relative performance of BH and MA strategies with small-capitalization US stocks Market timing coefficients of MA strategies with small-capitalization US stocks Abnormal returns of MA strategies with small-capitalization US stocks 165

13 Tables 2.1 Summary statistics Factor regressions results Market-timing regressions Factor regressions with business cycles and down markets Conditional regressions with market dividend yield and treasury bill rate Conditional regressions with market dividend yield, recession dummy and treasury bill rate Factor regressions results in subperiods Alternative MA lag lengths Trading frequency and BETC Trading and BETC at various MA lags Portfolio performance with short-selling Factor loadings with short-selling Trading intensity with short-selling Market timing with short-selling Portfolio performance with skipping a day Factor loadings with skipping a day Trading intensity with skipping a day Market timing with skipping a day Portfolio performance with zero cash rate Factor loadings with zero cash rate Trading intensity with zero cash rate Market timing with zero cash rate Summary statistics for US Stocks 168

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15 Acknowledgments I would like to thank Syed Zamin Ali, Tze Chuan Chewie Ang, B. Ross Barmish, Jean Canil, Don Chance, Sudipto Dasgupta, Daisy Doan, Victor Fang, Mebane Faber, Berowne Hlavaty, Daniel Orlovsky, James Primbs, Bruce Rosser, Vincent Xiang, Takeshi Yamada, Alfred Yawson, Xinwei Zheng, Edward Zychowicz as well as seminar participants at Deakin University and the University of Adelaide and participants in the 2012 Australasian Finance and Banking conference in Sydney, the 2014 J.P. Morgan quantitative conference in Sydney and the 2013 Midwest Finance Association meetings in Chicago. Any remaining errors are my own responsibility.