Whether moving average indicator can help in making profit in stock market

Abstract

Moving average (MA) is one of the most popular technical indicators used by investors to predict the trend of stock market nowadays. Some people would like to formulate “buy” and “sell” strategy by using single and crossover Exponential Moving average. The objective of this paper is to use empirical analysis, i.e. Jensen’s alpha approach to find out whether moving average (MA) indicator can formulate buy and sell strategy so as to make profit in the stock market. Our results indicate that the majority of stocks under testing do not outperform what the market expects. This can be explained by the theory of weak-form efficient market. While no transaction cost is assumed in the testing model, MA would generate a frequent buy and sell signals during a volatile period which may induce an even worse result.