Simple moving average as a risk management method in main asset classes

Abstract

As during turbulent market conditions correlations between main asset classes falter, investors are forced to experience times of high uncertainty which in most cases may lead to irrational decisions. This problem stimulates search for non-discretionary risk management methods. The aim of the paper is to test if concept of SMA can be used in such role. The investigation is based on studying historical prices of various asset classes; statistical data analysis method is used. Results of this study reveal that SMA method when used as a trend indicator for main stock and REIT indices can significantly reduce standard deviation and maximum drawdown measures.