Optimal Intrinsic Momentum and SMA Intervals Across Asset Classes

“Intrinsic Momentum or SMA for Avoiding Crashes?” presents a test comparing comparing a 10-month simple moving average (SMA) and various length intrinsic momentum measurement intervals on the long-run Dow Jones Industrial Average (DJIA). The 10-month SMA is likely close to optimal for the DJIA sample per “Is There a Best SMA Calculation Interval for Long-term Crossing Signals?”. A few intrinsic momentum measurement intervals are competitive with the 10-month SMA based on average monthly return and terminal value. What are the optimal intrinsic momentum and SMA intervals for an aggregate recent sample of asset classes? 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)
SPDR Dow Jones REIT (RWR)
iShares Barclays 20+ Year Treasury Bond (TLT)
3-month Treasury bills (Cash)

For intrinsic momentum tests, we invest in each ETF (Cash) when its return over the past 1 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 2 to 12 months. Key metrics for comparing different intrinsic momentum and SMA measurement intervals are overall average monthly return (measured across all asset-months) and total terminal value from $100,000 initial investments in all assets at their respective inceptions. Using monthly 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 January 2013 (127 months), we find that: (more…)