The Stability of Moving Average Technical Trading Rules on the Dow Jones Index

This paper analyzes the behavior of moving average technical trading rules applied to over 100 years of the Dow Jones Industrial Index. It is found that the differences between conditional means during buy and sell periods has changed dramatically over the previous 10 years relative to the previous 90 years of data, but differences in conditional variances have not changed much over the entire sample. Further robustness checks indicate that similar results could be obtained with simple momentum based strategies. The analysis is performed on the actual Dow series, but these techniques could be useful in derivative markets where better estimates of conditional means and variances would be useful information. ∗Graduate School of International Economics and Finance, Brandeis University, 415 South Street, Mailstop 021, Waltham, MA 02453 2728, [email protected], stanley.feldberg.brandeis.edu/∼blebaron. The author is grateful to two anonymous referees for comments.