Abstract
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.
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