Moving Average Strategy and relationship between stock markets and exchange rates : Evidence of the Mongolian Stock Market

Abstract

We use monthly data of the Mongolian stock market to examine whether the market timing

strategy filtered by volatility delivers abnormal returns. First of all, we find that 3-month

MA strategy outperforms all other months of MA strategy. However, we cannot identify

the sources that contribute to the abnormal returns of the portfolio. To obtain more robust

results, we need to provide more empirical evidence to support the validity of our

proposition in the future. Second, we contribute to the interactions between TOP20

company stock return, exchange rate (MNT/CNY) return by considering the effects of

economic policy uncertainty. Based on a VAR and vector autoregressive (VEC) models.

Our empirical results show that the short-term and long-term between stock returns and

exchange rate do vary over time. In addition, the relations between stock and exchange rate

have positive sign sensitivity to the short rate and the slope of term structure, while their

sensitivity to exchange rate volatility is negative.