Testing Mechanical Moving Average Trading Systems

Abstract

Using daily stock price data for stocks listed on the New York Stock Exchange, the S&P 500, and the Goldman Sachs Commodity Index, this study examines whether or not there exists evidence of violations of weak form market efficiency. If markets are efficient in the weak form, timing systems should not produce annualized returns that are greater than the annualized returns of a buy and hold system. This study tests timing systems utilizing mechanical simple moving average systems. The moving averages tested are the 50-day, 200-day, and a combination 50/200-day crossover. As a result this study finds that in at least some cases there appears to be violations of weak form market efficiency. Additionally the results show that utilizing a moving average system reduces risk to a degree when compared with a buy and hold strategy.