Testing Moving Average Trading Strategies on ETFs

The evidence for the profitability of MA strategies documented in the literature is usually based on non-tradable indices or portfolios/factors and the use of the zero return or risk-free rate as the benchmark. In this paper we implement MA strategies using ETFs and examine the performance of such strategies using a variety of risk-adjusted performance measures. We find that relative to the buy-and-hold strategy, MA strategies have lower average returns and Sharpe ratios, but fare better under factor-adjusted performance measures such as the CAPM alpha. We also find that MA strategies become less profitable when they are implemented using ETFs than using their underlying indices. In addition, we propose a quasi-intraday version of the standard MA strategy (QUIMA) that allows investors to trade immediately upon observing MA crossover signals. The QUIMA strategy outperforms the standard one that only trades at the close of a trading day, when the long-term MA lag length is no more than 50 days.