Moving average strategies : their effectiveness and implications for SES stocks

Abstract

There are two distinct approaches to stock investment. They are the fundamental analysis

approach and the technical analysis approach. These two approaches are at times used to

compliment one another when making investment decisions.

This research project focuses on the study of technical analysis. An empirical test was done to

investigate the effectiveness of the moving average strategies using the SES All Share Index, for

the period 1989 to 1993 . The strategies selected for testing are the simple moving average,

exponential moving average, crossover of short term and long term moving average, the moving

average convergence divergence and the moving average oscillator. The return generated by these

moving average strategies was compared with a buy and hold strategy. A t-test was used to test

the significance of the results obtained.

The results of the analysis showed that the short term moving averages were generally able to

outperform the buy and hold strategy. However, the t-test revealed that none of the results

obtained were significant at the 95% confidence level.