The Profitability Of The Trading Strategy In Chinese Market-based On Moving Average

In this paper, the profitability of moving average timing strategy in Chinese stockmarket is documented and corresponding financial product is designed based on thestrategy. The strategy is separately applied on the overall market index, individualstocks, and decile portfolios sorted by volatility. In each circumstance, the strategyoutperforms the buy-and-hold strategy evidently with lower risk, higher Sharpe ratioand lower maximum drawdown. As to the overall market index, the strategy deliverssignificantly positive alpha in both CAPM and Fama-French model. For individualstocks, the strategy brings abnormal return on average and reduced risks. Forvolatility decile portfolios, the abnormal returns are significant and increasemonotonically with volatility. In each circumstance, abnormal returns are robust forsub-periods and different time lags, and not sensitive to trading cost. At last theexecution details are presented to show the feasibility and the profitability of theproduct based on moving average strategy on the highest volatility decile portfolio.