Appendix: Trading strategies
Variable length moving average (VMA)
The VMA rule generates a signal by comparing the short moving average (SMA) and long-moving average (LMA). Given a band as a requirement, if the SMA is higher (lower) than the LMA more than the band, it generates a buy (sell) signal. Following Chan et al. (2016), this study includes 1-50, 1-150, 5-150, 1-200, 2-200 (period of SMA-period of LMA) in our study.
Fixed length moving average (FMA)
The FMA strategy has a buy (sell) signal when the SMA crosses the LMA as follows: (above). Similarly, with the band as a requirement, the difference between LMA and SMA should be larger than the band to secure a signal. The holding period will be fixed as ten days according to Bessembinder and Chan (1998).
Trading range break (TRB)
The TRB strategy generates a signal if the stock price rises above the resistance (buy) or below the support level (sell). The resistance level is defined as follows: local maximum over n trading days where the support level is the minimum over n trading days. Similar to the FMA strategy, the holding period will be fixed as ten days according to Brock et al. (1992).
Relative strength index (RSI)
The RSI strategy using “50 crossover” trading rule is proposed by Wong et al. (2003). Let \(C_t\) as the daily closing price at time t. First Step, we define \(U_i=\max (C_i - C_{i-1}, 0)\) and \(D_i=\max (C_{i-1} - C_i, 0)\). Next, we compute \(U_N(t) = \frac{1}{N} \sum _{i=t-N+1}^t U_i\) and \(D_N(t) = \frac{1}{N} \sum _{i=t-N+1}^t D_i\). Finally, the RSI at time t is defined as as follows.
$$\begin{aligned} \text {RSI}_N(t) = 100 - \frac{100}{1+\frac{U_n(t)}{D_N(t)}}. \end{aligned}$$
Accordingly, we follow the “50 crossover” method to generate the signal. When the RIS is higher than 50, it is a buy signal, and vice versa. This study includes the four rules tested, namely N equals to 5, 10, 20, 30 respectively in our study.
Intraday and interday momentum (IIM)
IIM strategies include two classes to strategies, namely intraday momentum, and interday momentum. They are based on the measurements Average Intraday Momentum (AIM) and Average Interday Momentum (AOM) are defined as follows.
$$\begin{aligned} \begin{aligned} \text {AIM}_N(t)&= \frac{\sum _{i=t-N+1}^t |C_i - O_i|}{N} \\ \text {AOM}_N(t)&= \frac{\sum _{i=t-N+1}^t |C_i - C_{i-1}|}{N} \end{aligned} \end{aligned}$$
This study includes 5 trading rules from Lam et al. (2007).