The Market Timing Power of Moving Averages: Evidence from US REITs and REIT Indexes

Abstract

I present evidence that a moving average (MA) trading strategy dominates buying and holding the underlying asset in a mean‐variance sense using monthly returns of value‐weighted and equal‐weighted US REIT indexes over the period January 1980 until December 2010. The abnormal returns are largely insensitive to the four Carhart factors and produce economically and statistically significant alphas of between 10 and 15% per year after transaction costs. This performance is robust to different lags of the MA and in subperiods while investor sentiment, liquidity risks, business cycles, up and down markets, and the default spread cannot fully account for its performance. The MA strategy works just as well with randomly generated returns and bootstrapped returns. The substantial market timing ability of the MA strategy appears to be the main driver of the abnormal returns. The returns to the MA strategy resemble the returns of an imperfect at‐the‐money protective put strategy relative to the underlying portfolio. The lagged signal to switch has substantial predictive power over the subsequent return of the REIT index. The MA strategy avoids the sharp downturn at the beginning of 2008 and substantially outperforms the cumulative returns of the buy‐and‐hold strategy using all of the 20 REIT indexes. The results from applying the MA strategy with 274 individual REITs largely corroborate the findings for the REIT indexes.

Are Markets Adaptive? Evidence of Predictability and Market Efficiency of Lodging/Resort Reits

“…We interpret this as evidence against market efficiency and a random walk. Our results are consistent with Glabadanidis (2014); when we apply moving average rules and we find that lodging/resort REITs has the highest alpha, even when we use multiple factors to adjust for risk. This finding indicates that the lodging/resort market is weak-form inefficient (Glabadanidis, 2014).…”

Timing the Market with a Combination of Moving Averages

“…This paper is similar in spirit to Glabadanidis (, , ) and Han et al (). However, several important differences stand out.…”

“…Finally, I provide a link between technical indicators and fundamental indicators by presenting evidence that the performance of the combination moving average strategy can be partially explained by a conditional asset pricing model with the market's dividend yield, short-term interest rates, and a recession indicator. This paper is similar in spirit to Glabadanidis (2014Glabadanidis ( , 2015aGlabadanidis ( , 2015b and Han et al (2013). However, several important differences stand out.…”

“…Motivated in part by the predictive power of the moving average indicator, Han et al () and Jiang () construct a trend factor with considerable cross‐sectional explanatory power and substantial historical performance. In a similar vein, Glabadanidis (, , ) investigates and documents the performance of the simple moving average strategy with various US and international portfolios as well as individual US stocks.…”

Investing in the S&P 500 index: Can anything beat the buy‐and‐hold strategy?

“…This strategy has been successfully applied to stock and bond markets, commodities, currencies, etc. Moreover, Glabadanidis () documents a clear dominance of the moving average trading strategy over buying and holding U.S. REIT indices.…”