Search results for "Trading strategy"
showing 10 items of 20 documents
A Simulation Analysis of the Microstructure of an Order Driven Financial Market with Multiple Securities and Portfolio Choices
2005
In this paper we propose an artificial market where multiple risky assets are exchanged. Agents are constrained by the availability of resources and trade to adjust their portfolio according to an exogenously given target portfolio. We model the trading mechanism as a continuous auction order-driven market. Agents are heterogeneous in terms of desired target portfolio allocations, but they are homogeneous in terms of trading strategies. We investigate the role played by the trading mechanism in affecting the dynamics of prices, trading volume and volatility. We show that the institutional setting of a double auction market is sufficient to generate a non-normal distribution of price changes…
Revisiting the Profitability of Market Timing with Moving Averages
2017
In a recent empirical study by Glabadanidis (“Market Timing with Moving Averages” (2015), International Review of Finance 15(13):387–425), the author reports striking evidence of extraordinarily good performance of the moving average trading strategy. In this paper, we demonstrate that this “too good to be true” reported performance of the moving average strategy is due to simulating trading with look-ahead bias. We perform simulations without look-ahead bias and report the true performance of the moving average strategy. We find that, at best, the performance of the moving average strategy is only marginally better than that of the corresponding buy-and-hold strategy. In statistical terms,…
Why Investors Should not be Cautious about the Academic Approach to Testing for Stock Market Anomalies
2005
The ability of investors to implement seasonal strategies implied by academic papers has been widely criticized, most recently by Hudson et al. (Applied Financial Economics, 12, 681–86, 2002). This paper addresses these concerns, and provides an example of a strategy derived from academic papers that indicates how and to what profitability such a strategy can be implemented. In particular, the pre-holiday anomaly is examined, where returns tend to be higher on the day before a holiday. After checking that the pre-holiday return compensates market frictions, the existence and the changing nature of such anomaly is tested. Finally, the profitability of the pre-holiday trading strategy in an o…
Revisiting the Profitability of Market Timing with Moving Averages
2016
In a recent empirical study by Glabadanidis ("Market Timing With Moving Averages" (2015), International Review of Finance, Volume 15, Number 13, Pages 387-425; the paper is also available on the SSRN and has been downloaded more than 7,500 times) the author reports striking evidence of extraordinary good performance of the moving average trading strategy. In this paper we demonstrate that "too good to be true" reported performance of the moving average strategy is due to simulating the trading with look-ahead bias. We perform the simulations without look-ahead bias and report the true performance of the moving average strategy. We find that at best the performance of the moving average stra…
Optimal Electrical Distribution Systems Reinforcement Planning Using Gas Micro Turbines by Dynamic Ant Colony Search Algorithm
2007
Distribution systems management is becoming an increasingly complicated issue due to the introduction of new energy trading strategies and new technologies. In this paper, an optimal reinforcement strategy to provide reliable and economic service to customers in a given time frame is investigated. In the new deregulated energy market and considering the incentives coming from the political and economical fields, it is reasonable to consider distributed generation (DG) as a viable option for systems reinforcement. In the paper, the DG technology is considered as a possible solution for distribution systems capacity problems, along several years. Therefore, compound solutions comprising the i…
Improving Pairs Trading Using Neural Network Techniques and Fundamental Ratios
2020
Pairs trading is a quantitative trading strategy consisting on identifying two stocks that historically move together and, using the assumption that their prices difference has mean- reverting properties, exploit the deviation from the mean by taking long – short position in the chosen pair to profit. Throughout the years, different approaches have been developed in order to exploit this strategy. However, there is little literature who looks whether the divergences in the prices are generated by poor company results, i.e. whether the deviation from the mean are product of bad (or good) fundamentals and are justified, or if they generate a new equilibrium point for the pair. In addition, si…
Testing Profitability of Technical Trading Rules
2017
Technical traders typically rely on back-testing which is defined as the process of testing a trading strategy using relevant historical data. Back-testing usually involves “data mining” which denotes the practice of finding a profitable trading strategy by extensive search through a vast number of alternative strategies. This chapter explains that the data-mining procedure tends to find a strategy which performance benefited most from luck. As a result, the performance of the best strategy in a back test is upward biased. This fact motivates that any back-test must be combined with a data-mining correction procedure that adjusts downward the estimated performance. Another straightforward m…
Trading with Asymmetric Volatility Spillovers
2007
: We study the profitability of trading strategies based on volatility spillovers between large and small firms. By using the Volatility Impulse-Response Function of Lin (1997) and its extensions, we detect that any volatility shock coming from small companies is important to large companies, but the reverse is only true for negative shocks coming from large firms. To exploit these asymmetric patterns in volatility, different trading rules are designed based on the inverse relationship existing between expected return and volatility. We find that most strategies generate excess after-transaction cost profits, especially after very bad news and very good news coming from large or small firm…
Assessing price clustering in European Carbon Markets
2012
Abstract The presence of price clustering in markets is taken as a sign of market inefficiency that can influence trading strategies. In this paper, we study the presence of a concentration in prices in carbon futures markets. Specifically, we analyze the European Carbon Futures Markets and test for evidence of preference for certain prices above others. Our results reveal the strong presence of price clustering in the carbon market at prices ending in digits 0 and 5. These findings support the attraction hypothesis, which endorses a significant clustering on gravitational prices, but also backs the negotiation hypothesis, which advocates greater clustering when trading costs are higher.
A Comprehensive Look at the Real-Life Performance of Moving Average Trading Strategies
2015
Despite the enormous current interest in market timing and a series of publications in academic journals, there is still lack of comprehensive research on the evaluation of the profitability of trading rules using methods that are free from the data-snooping bias. In this paper we utilize the longest historical dataset that spans 155 years and extend previous studies on the performance of moving average trading rules in a number of important ways. Among other things, we investigate whether overweighting the recent prices improves the performance of timing rules; whether there is a single optimal lookback period in each trading rule; and how accurately the trading rules identify the bullish …