The distance between short- and long-run moving averages of prices (MAD) predicts future equity returns in the cross section. Annualized value-weighted alphas from the accompanying hedge portfolios are around 9%, and the predictability goes beyond momentum, 52-week highs, profitability, and other prominent anomalies. MAD-based investment payoffs survive reasonable trading costs faced by institutions, and are stronger on the long side relative to the short counterpart.
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- anchoring bias
- crossing rules
- market efficiency
- moving averages
- technical analysis