Long-term SMA and TOTM Combination Strategy

Does a strategy combining a long-term simple moving average and the turn of the month beat the market and its components? To investigate, we apply four strategies to S&P Depository Receipts (SPY) as a tradable proxy for the stock market that incorporates portfolio formation costs: (1) buy and hold SPY; (2) invest in SPY (cash) when SPY closes above (below) its 200-day simple moving average ( 200-day SMA); (3) invest in SPY from the close five trading days before through the close four trading days after the last trading day of each month and cash at all other times (TOTM); and, (4) invest in SPY when SPY closes above its 200-day SMA and otherwise use the TOTM strategy (SMA + TOTM). We explore sensitivities of these strategies to a range of trading frictions. Using daily dividend-adjusted closing levels of SPY from inception (1/29/93) through 7/11/11 and contemporaneous three-month Treasury bill (T-bill) yields, we find that: (more…)