The influence of investor's behavioral biases on the usefulness of the Dual Moving Average Crossovers |
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Authors: | Kotaro Miwa Kazuhiro Ueda |
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Affiliation: | (1) Department of Systems Science, University of Tokyo, 3-8-1 Komaba, Meguro-ku, 153-8902 Tokyo, Japan |
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Abstract: | The so called Dual Moving Average Crossovers are said to be useful signals for forecasting trends of stock prices, as one
of the technical analysis methods. First, we examined the usefulness of these crossovers by using historical daily closing
price data and tick by tick price data of Japanese stocks. The results revealed that these crossovers were useful as confirmatory
signals for forecasting market trends. Second, we tried to identify the underlying reasons for the usefulness of the crossovers.
A model, which followed the Efficient Market Hypothesis, was found to fail to generate the price fluctuation where the crossovers
were useful. We then developed a model that incorporated investor's suspicion about current price validity and two famous
behavioral biases: conservativeness and representativeness. We identified the mechanism that those crossovers were closely
related to investor's suspicion and the behavioral biases.
Kotaro Miwa: He is a Ph.D. candidate at the University of Tokyo. He is also a quantitative financial analyst and fund manager at Tokio
Marine Asset Managements. He received his B.A. degree from the Faculty of Engineering at the University of Tokyo in 2001.
He also received M.A. degree from the Department of Systems Science at the University of Tokyo in 2003. His current research
interests include behavioral finance and financial engineering.
Kazuhiro Ueda, Ph.D.: He is an associate professor at the University of Tokyo. He received his B.A. degree from the Faculty of Liberal Arts and
Science at the University of Tokyo in 1988. He also received M.A. and Ph.D. degrees in cognitive science from the Department
of Systems Science at the University of Tokyo in 1990 and 1993. His current research interests include cognitive analysis
on scientific problem solving, adaptive human-machine interface, artificial market and behavioral finance and cognitive robotics. |
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Keywords: | Technical Analysis Dual Moving Average Crossovers Efficient Market Hypothesis Representativeness Conservativeness |
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