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.
All Science Journal Classification (ASJC) codes
- Theoretical Computer Science
- Hardware and Architecture
- Computer Networks and Communications