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J. Risk Financial Manag., Volume 7, Issue 1 (March 2014), Pages 1-27

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Research

Open AccessArticle Revisiting the Performance of MACD and RSI Oscillators
J. Risk Financial Manag. 2014, 7(1), 1-12; doi:10.3390/jrfm7010001
Received: 25 October 2013 / Revised: 6 January 2014 / Accepted: 28 January 2014 / Published: 26 February 2014
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Abstract
Chong and Ng (2008) find that the Moving Average Convergence–Divergence (MACD) and Relative Strength Index (RSI) rules can generate excess return in the London Stock Exchange. This paper revisits the performance of the two trading rules in the stock
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Chong and Ng (2008) find that the Moving Average Convergence–Divergence (MACD) and Relative Strength Index (RSI) rules can generate excess return in the London Stock Exchange. This paper revisits the performance of the two trading rules in the stock markets of five other OECD countries. It is found that the MACD(12,26,0) and RSI(21,50) rules consistently generate significant abnormal returns in the Milan Comit General and the S&P/TSX Composite Index. In addition, the RSI(14,30/70) rule is also profitable in the Dow Jones Industrials Index. The results shed some light on investors’ belief in these two technical indicators in different developed markets. Full article
Open AccessArticle Validation of the Merton Distance to the Default Model under Ambiguity
J. Risk Financial Manag. 2014, 7(1), 13-27; doi:10.3390/jrfm7010013
Received: 13 December 2013 / Revised: 15 February 2014 / Accepted: 17 March 2014 / Published: 25 March 2014
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Abstract
Bharath and Shumway (2008) provide evidence that shows that it is the functional form of Merton’s (1974) distance to default (DD) model that makes it useful and important for predicting defaults. In this paper, we investigate whether the default predictability of the Merton
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Bharath and Shumway (2008) provide evidence that shows that it is the functional form of Merton’s (1974) distance to default (DD) model that makes it useful and important for predicting defaults. In this paper, we investigate whether the default predictability of the Merton DD model would be affected by taking investors’ ambiguity aversion into consideration. The Cox proportional hazard model is used to compare the forecasting power of Bharath and Shumway’s naive model, which retains the functional form of the Merton DD model and computes the default probability in a naive way, with our new model, which treats investors’ ambiguity aversion as additional information. We provide evidence to show that our new model performs better than Bharath and Shumway’s naive model. In addition, our empirical results show that the statistical significance of Bharath and Shumway’s naive default probability is retained in the credit default swap (CDS) spread regressions, though the sign of the coefficient is changed. However, both the sign and the statistical significance of our model are retained in the CDS spread regressions. Full article

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