emerging investors javier hazan sergio kurlat felipe monteiro eugen nuri the fuqua school of...
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Emerging Investors
Javier HazanSergio Kurlat
Felipe MonteiroEugen Nuri
The Fuqua School of BusinessDuke University
February 28, 2005
The Dual Simple Moving Average Crossover
FINANCE 453 (Global Asset Allocation and Stock Selection)
A widely used used technical indicator
Designed to smooth out temporary fluctuations and reveal the true path of trends.
Best performance in broad, trending markets
Easy to use (simple math)
FINANCE 453 (Global Asset Allocation and Stock Selection)
One moving average
Compares current price vs. MA
Sends signals early
Picks up many false signals
FINANCE 453 (Global Asset Allocation and Stock Selection)
Multiple moving averages
Long MA identifies trend; short MA used for timing
Limits the amount of false signals
FINANCE 453 (Global Asset Allocation and Stock Selection)
DMAC
Typically long:short MAs on a 8:1 ratio
Usually sends signal after crossover
FINANCE 453 (Global Asset Allocation and Stock Selection)
Emerging investors: Model #1
“Ratio before crossover”
FINANCE 453 (Global Asset Allocation and Stock Selection)
Emerging investors: Model #1
“Ratio before crossover”
FINANCE 453 (Global Asset Allocation and Stock Selection)
Emerging investors: Model #2
“Unit ratio”
FINANCE 453 (Global Asset Allocation and Stock Selection)
Emerging investors: Model #3
“Ratio after crossover”
FINANCE 453 (Global Asset Allocation and Stock Selection)
Emerging investors: Model #4
“Product after crossover”
FINANCE 453 (Global Asset Allocation and Stock Selection)
Results
Ratio after crossover
ratio after crossover (quintiles, long)
0.00
0.50
1.00
1.50
2.00
2.50
1 2 3 4 5
FINANCE 453 (Global Asset Allocation and Stock Selection)
Results
Ratio after crossover
ratio after crossover (quintiles, short)
0.00
0.50
1.00
1.50
2.00
2.50
1 2 3 4 5
FINANCE 453 (Global Asset Allocation and Stock Selection)
Results
Ratio after crossover
7.841.057.752.1
13.172.025.880.88
8.52.016.451.02
7.461.357.911.29
8.140.197.72.18
ReturnReturn
Std Dev. Equal Wgt. Std Dev. Equal Wgt.
SHORT LONG
FINANCE 453 (Global Asset Allocation and Stock Selection)
Results
Ratio after crossover: Fractile 1 comparative returns
FINANCE 453 (Global Asset Allocation and Stock Selection)
0%
5%
10%
15%
20%
25%
1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
An
nu
al R
etu
rn
Long Fractile 1
S&P500
Results
Ratio after crossover: Fractile 1 comparative Sharpe ratio
FINANCE 453 (Global Asset Allocation and Stock Selection)
0
1
1
2
2
3
3
4
4
5
1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Rati
o Long Fractile 1
S&P500