Physica A 269 (1999) 170–176 www.elsevier.com/locate/physa The moving averages demystied N. Vandewalle a ;∗ , M. Ausloos a , Ph. Boveroux b a Institut de Physique B5, Sart Tilman, Universit e de Li ege, B-4000 Li ege, Belgium b Th eorie mon etaire et nances B31, Facult e d’Economie, Gestion et Sciences Sociales, Universit e de Li ege, B-4000 Li ege, Belgium Received 19 October 1998; received in revised form 27 December 1998 Abstract A common method in technical analysis is the construction of moving averages along time series of stock prices. We show that they present a practical interest for physicists, and raise new questions on fundamental ground. Indeed, self-ane signals characterized by a dened roughness exponent H can be investigated through moving averages. The density  of crossing points between two moving averages is shown to be a measure of long-range power-law correlations in a signal. Finally, we present a specic transform with which various structures in a signal, e.g. trends, cycles, noise, etc. can be investigated in a systematic way. c  1999 Elsevier Science B.V. All rights reserved. PACS: 05.50.+j; 47.53.+n Keywords: Econophysics; Moving averages 1. Introduction In Physics, theories are mainly motivated by observations. Conversely, experiments are set up in order to either conrm or inrm a theory. In Finance, the situation is quite dierent: there is a huge gap between econometry and empirical nance. Indeed, the hypothesis of a pure random stock market is almost taken for granted in econometry while it is denetely not considered as such in empirical nance. Econophysicists are trying to ll the above gap as Stanley said in his contribution “Can Physics contribute to Finance?” [1]. The question of the present contribution is quite the opposite: “Can Finance con- tribute to Physics?”. The answer of this question is undoubtedly YES. We will illustrate this answer in the particular case of a technical tool, the so-called moving averages. * Corresponding author. E-mail address: nvandewalle@ulg.ac.be (N. Vandewalle) 0378-4371/99/$ - see front matter c  1999 Elsevier Science B.V. All rights reserved. PII: S0378-4371(99)00090-4