Optimal Intrinsic Momentum and SMA Intervals Across Asset Classes

Posted in Technical Trading


“Intrinsic Momentum or SMA for Avoiding Crashes?” compares a 10-month simple moving average (SMA10) and various length intrinsic momentum (IM) measurement intervals for timing the Dow Jones Industrial Average (DJIA) over the long run. SMA10 is likely close to optimal for the DJIA sample per “Is There a Best SMA Calculation Interval for Long-term Crossing Signals?”. A few IM measurement intervals are competitive with SMA10. What are the optimal IM and SMA intervals for different asset class proxies? To investigate, we use data from “Simple Asset Class ETF Momentum Strategy” for the following eight asset class exchange-traded funds (ETF), plus Cash:

PowerShares DB Commodity Index Tracking (DBC)
iShares MSCI Emerging Markets Index (EEM)
iShares MSCI EAFE Index (EFA)
SPDR Gold Shares (GLD)
iShares Russell 1000 Index (IWB)
iShares Russell 2000 Index (IWM)
iShares Barclays 20+ Year Treasury Bond (TLT)
3-month Treasury bills (Cash)

For IM tests, we invest in each ETF (Cash) when its return over the past one to 12 months is positive (negative). For SMA tests, we invest in each ETF (Cash) when its price is above (below) its average monthly price over the past two to 12 months. Since SMA rules use price levels and IM rules use returns, IM measurement interval N corresponds to SMA measurement interval N+1. For example, a 6-month IM measurement uses the same start and stop points as a 7-month SMA measurement. The key metric for comparing different IM and SMA measurement intervals is compound annual growth rate (CAGR) from earliest ETF data availabilities through the end of the sample period. Using monthly dividend-adjusted closing prices for the asset class proxies and the yield for Cash over the period July 2002 (or inception if not available then) through March 2015 (no more than 153 months), we find that: (more…)

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