This paper examines how the size of the rolling window, and the frequency used in moving average (MA) trading strategies, affects financial performance when risk is measured. We use the MA rule for market timing, that is, for when to buy stocks and when to shift to the risk-free rate. The important issue regarding the predictability of returns is assessed. It is found that performance improves, on average, when the rolling window is expanded and the data frequency is low. However, when the size of the rolling window reaches three years, the frequency loses its significance and all frequencies considered produce similar financial performance. Therefore, the results support stock returns predictability in the long run. The procedure takes account of the issues of variable persistence as we use only returns in the analysis. Therefore, we use the performance of MA rules as an instrument for testing returns predictability in financial stock markets.

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Keywords Data frequency, Market timing, Moving average, Returns predictability, Risk, Rolling window, Trading strategies, Volatility
JEL Time-Series Models; Dynamic Quantile Regressions (jel C22), Time-Series Models; Dynamic Quantile Regressions (jel C32), Financial Econometrics (jel C58), Financing Policy; Capital and Ownership Structure (jel G32)
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Journal Risks
Chang, C-L, Ilomäki, J, Laurila, H, & McAleer, M.J. (2018). Long run returns predictability and volatility with moving averages. Risks, 6(4). doi:10.3390/risks6040105