Backtesting of an investment strategy taking advantage of the volatility in stock prices

• Autor(a) principal: Paixão, Margarida Soares
• Data de Publicação: 2018
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/25450
• topic: Domínio/Área Científica::Ciências Sociais::Economia e Gestão

This thesis tests a strategy of Technical Analysis for the stock market which tries to catch profits from variations in stock prices (volatility) and does that by assuming that the price comes back to the mean most of the times. Therefore, the strategy sells when the price is above the mean by a certain distance and buys when it is below. The strategy was tested both on the S&P 500 index and for 30 separate companies of the US market. Intraday data of 5 minutes was used. The results for the S&P 500 are not very robust, however as expected, for separate companies the performance was better, having obtained statistically significant positive returns for the period. The risks of the strategy are associated with whether or not the stock exhibits the behavior that is expected consistently in time and more frequently than it exhibits undesired behaviors. For the period studied, the gains overcome the losses. Using a portfolio with a larger number of companies can help reduce risk.