On the moving average buy-sell trading rule

Abstract

Purpose

The purpose of this paper is to look at the power of the Student t-test applied to two independent samples when returns from AR(1) process are categorized into two samples by moving average buy-sell trading rule.

Design/methodology/approach

Simulation and empirical study for returns from NASDAQ via bootstrapping resampling method are conducted.

Findings

The authors conclude that applying the MA Trading Rule followed by Student t-test is not appropriate for analyzing market efficiency.

Originality/value

Moving average buy-sell trading rule is widely used in finance to test if the market is efficient. In this paper, it is one of the first kind of research to examine the power of the test via simulation and empirical study.

Citation

Ren, L. and Ren, P. (2016), "On the moving average buy-sell trading rule", Managerial Finance, Vol. 42 No. 2, pp. 74-81. https://doi.org/10.1108/MF-04-2015-0100