Go to www.mhhe.com/bkm and link to the material for Chapter 12, where you will find 5 years of weekly returns for the S&P 500.
a. Set up a spreadsheet to calculate the 26-week moving average of the index. Set the value of the index at the beginning of the sample period equal to 100. The index value in each week is then updated by multiplying the previous week’s level by (1 + rate of return over previous week).
b. Identify every instance in which the index crosses through its moving average from below. In how many of the weeks following a cross through does the index increase? Decrease?
c. Identify every instance in which the index crosses through its moving average from above. In how many of the weeks following a cross through does the index increase? Decrease?
d. How well does the moving average rule perform in identifying buy or sell opportunities?