Momentum profits following bull and bear markets

This paper examines the profitability that the widely published momentum strategy achieves following bull and bear markets. Investors can gain stronger momentum profits by adopting the continuation strategy after poor lagged market returns. The longer the duration used to describe the bear state, the stronger the momentum returns that are realised. The results contradict the theoretical findings of the investors' overconfidence model of Daniel et al. (`Investor Psychology and Security Market Under- and Over-Reactions', Journal of Finance, 53, 1839-85, 1998) and the follow-the-trend model of Kim (`Long-term Momentum Hypothesis: Contrarian and Momentum Strategies', Working Paper, 2002), but concur with the theoretical results of the traders' hesitation model of Du (`Heterogeneity in Investor Confidence and Asset Market Under- and Overreaction', Working Paper, 2002).

High level data fusion

We address the question of how to obtain effective fusion of identification information such that it is robust to the quality of this information. As well as technical issues data fusion is encumbered with a collection of (potentially confusing) practical considerations. These considerations are described during the early chapters in which a framework for data fusion is developed. Following this process of diversification it becomes clear that the original question is not well posed and requires more precise specification. We use the framework to focus on some of the technical issues relevant to the question being addressed. We show that fusion of hard decisions through use of an adaptive version of the maximum a posteriori decision rule yields acceptable performance. Better performance is possible using probability level fusion as long as the probabilities are accurate. Of particular interest is the prevalence of overconfidence and the effect it has on fused performance. The production of accurate probabilities from poor quality data forms the latter part of the thesis. Two approaches are taken. Firstly the probabilities may be moderated at source (either analytically or numerically). Secondly, the probabilities may be transformed at the fusion centre. In each case an improvement in fused performance is demonstrated. We therefore conclude that in order to obtain robust fusion care should be taken to model the probabilities accurately; either at the source or centrally.