Moving average distance as a predictor of equity returns

Doron Avramov, Guy Kaplanski, Avanidhar Subrahmanyam*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

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.

Original languageAmerican English
Pages (from-to)127-145
Number of pages19
JournalReview of Financial Economics
Volume39
Issue number2
DOIs
StatePublished - Apr 2021
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2020 University of New Orleans

Keywords

  • anchoring bias
  • crossing rules
  • market efficiency
  • moving averages
  • technical analysis

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