Profitability of moving-average technical analysis over the firm life cycle: Evidence from Taiwan

摘要

Using a sample of Taiwanese listed firm stocks during 1992-2018, this paper tests the profitability of the moving average (MA) technical analysis over the firm life cycle (FLC). Building on the Dickinson (2011) FLC measure of, the results indicate a U-shape of MA profitability over the FLC-MA abnormal performance is higher in the introduction and shakeout/decline stages but lower in the growth and mature stages. Such a U-shape remains after controlling for various risk factors, such as the Fama-French five factors, the momentum factor, and the liquidity factor. The results of this study are robust to alternative lag length specifications for the MA, life cycle proxy, sub-period selection, equally/valued weighted sorted life-cycle portfolio, and various market stats, such as bullish/bearish market periods, high/low market volatility, and expansion/recession economic cycles. The overall results support the information uncertainty hypothesis and the dynamic resource-based life-cycle theory, postulating that a trend-chasing MA strategy is more profitable for firms in the introduction and shakeout/decline stages that are characterized by greater information uncertainty and, thus, longer underreaction-driven price continuation.