1. Emerging Investors Javier Hazan Sergio Kurlat Felipe Monteiro Eugen Nuri The Fuqua School of Business Duke University February 28, 2005 The Dual Simple Moving Average Crossover FINANCE 453 (Global Asset Allocation and Stock Selection)

2. A widely used used technical indicator Designed to smooth out temporary fluctuations and reveal the true path of trends. Best performance in broad, trending markets Easy to use (simple math) FINANCE 453 (Global Asset Allocation and Stock Selection)

3. One moving average Compares current price vs. MA Sends signals early Picks up many false signals FINANCE 453 (Global Asset Allocation and Stock Selection)

4. Multiple moving averages Long MA identifies trend; short MA used for timing Limits the amount of false signals FINANCE 453 (Global Asset Allocation and Stock Selection)

5. DMAC Typically long:short MAs on a 8:1 ratio Usually sends signal after crossover FINANCE 453 (Global Asset Allocation and Stock Selection)

6. Emerging investors: Model #1 “Ratio before crossover” FINANCE 453 (Global Asset Allocation and Stock Selection)

7. Emerging investors: Model #1 “Ratio before crossover” FINANCE 453 (Global Asset Allocation and Stock Selection)

8. Emerging investors: Model #2 “Unit ratio” FINANCE 453 (Global Asset Allocation and Stock Selection)

9. Emerging investors: Model #3 “Ratio after crossover” FINANCE 453 (Global Asset Allocation and Stock Selection)

10. Emerging investors: Model #4 “Product after crossover” FINANCE 453 (Global Asset Allocation and Stock Selection)

11. Results Ratio after crossover ratio after crossover (quintiles, long) 0.00 0.50 1.00 1.50 2.00 2.50 12345 FINANCE 453 (Global Asset Allocation and Stock Selection)

12. Results Ratio after crossover ratio after crossover (quintiles, short) 0.00 0.50 1.00 1.50 2.00 2.50 12345 FINANCE 453 (Global Asset Allocation and Stock Selection)

13. Results Ratio after crossover 7.841.057.752.1 13.172.025.880.88 8.52.016.451.02 7.461.357.911.29 8.140.197.72.18 Return Std Dev.Equal Wgt.Std Dev.Equal Wgt. SHORT LONG FINANCE 453 (Global Asset Allocation and Stock Selection)

14. Results Ratio after crossover: Fractile 1 comparative returns FINANCE 453 (Global Asset Allocation and Stock Selection) 0% 5% 10% 15% 20% 25% 199619971998199920002001200220032004 Year Annual Return Long Fractile 1 S&P500

15. Results Ratio after crossover: Fractile 1 comparative Sharpe ratio FINANCE 453 (Global Asset Allocation and Stock Selection) 0 1 1 2 2 3 3 4 4 5 199619971998199920002001200220032004 Year Ratio Long Fractile 1 S&P500