![]() Among other things, our hypothesis explains why the empirical performance of the MA rules is better than that of the MOM rule. We show that this hypothesis, coupled with our analytical results, has far-reaching practical implications and can explain a number of empirical observations. In this paper, we also develop a hypothesis about uncertain market dynamics. However, compared to the MOM rule, the MA rules exhibit more robust forecast accuracy for the future direction of price trends. Our results show that the similarity between the MOM and MA rules is high and increases with the strength of the trend. We provide theoretical results on the similarity between different trend-following rules and the forecast accuracy of trading rules. ![]() ![]() Our paper fills this gap by comparing and contrasting the two most popular trend-following rules, the momentum (MOM) and moving average (MA) rules, from a theoretical perspective. Despite the ever-growing interest in trend following and a series of publications in academic journals, there is a dearth of theoretical results on the properties of trend-following rules. ![]()
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