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on Financial Markets |
| By: | Markus Leippold (University of Zurich; Swiss Finance Institute); Qian Wang (University of Zurich - Department Finance; Inovest Partners AG); Min Yang (Swiss Finance Institute - University of Zurich) |
| Abstract: | This paper explores the effectiveness of technical patterns in predicting asset prices and market movements, emphasizing the role of news sentiment. We employ an image recognition method to detect technical patterns in price images and assess whether this approach provides more information than traditional rule-based methods. Our findings indicate that many model-based patterns yield significant returns in the US market, whereas bottom-type patterns are less effective in the Chinese market. The model demonstrates high accuracy in training samples and strong out-of-sample performance. Our empirical analysis concludes that technical patterns remain effective in recent stock markets when combined with news sentiment, offering a profitable portfolio strategy. This study highlights the potential of image recognition methods in market data analysis and underscores the importance of sentiment in technical analysis. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2488 |
| By: | Carlo Zarattini (CONCRETUM RESEARCH); Andrew Aziz (Peak Capital Trading; Bear Bull Traders); Andrea Barbon (University of St. Gallen; University of St.Gallen) |
| Abstract: | This paper investigates the profitability of a simple, yet effective intraday momentum strategy applied to SPY, one of the most liquid ETFs that tracks the S&P 500. Unlike the academic literature that typically limits trading to the last 30 minutes of the trading session, our model initiates trend-following positions as soon as there is an indication of abnormal demand/supply imbalance in the intraday price action. Building on trading techniques commonly used by active day traders, which have been discussed in our previous papers, we introduce the use of dynamic trailing stops to mitigate downside risks while allowing for unlimited upside potential. From 2007 to early 2024, the resulting intraday momentum portfolio achieved a total return of 1, 985% (net of costs), an annualized return of 19.6%, and a Sharpe Ratio of 1.33. We conduct extensive statistical tests to examine whether the profitability of the strategy is affected by different market volatility regimes and whether the estimated gamma imbalance of dealers could predict changes in strategy profitability. We analyze the daily profitability of the intraday momentum strategy with respect to day-of-the-week effects. Additionally, we evaluate its performance against well-known technical daily patterns to understand its behavior under various market conditions. Given the short-term nature of the model, we also assess the impact of commissions and slippage on the overall profitability of the strategy. |
| Keywords: | Day Trading, Day Trading Systems, Algo Trading, Momentum, Trend-Following, Intraday Momentum, Delta-Hedging |
| JEL: | C00 C10 C50 G00 G11 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2497 |
| By: | Peter M. DeMarzo; Arvind Krishnamurthy; Stefan Nagel |
| Abstract: | We develop a framework to estimate bank franchise value. Contrary to existing models, sticky deposits and low deposit rate betas do not imply negative duration. While operating costs could generate negative duration, they are offset by fixed interest rate spreads from lending activity. Consequently, franchise value declines as interest rates rise, further exacerbating losses on banks’ securities holdings. Banks with less responsive deposit rates tend to invest more in long-term securities, aiming to hedge cash flows rather than market value. Despite significant recent rate hike losses, most U.S. banks still retain sufficient franchise value to remain solvent, justifying forbearance. |
| JEL: | G2 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33308 |
| By: | Anusha Chari; Karlye Dilts Stedman; Christian T. Lundblad |
| Abstract: | A new, high frequency measure of investor sentiment outperforms similar measures in forecasting investment activity in emerging markets. |
| Keywords: | risk-on/risk-off; global investor risk aversion; extreme events; tail risk; portfolio reallocation; return predictability |
| JEL: | F21 F36 F65 G11 G12 G15 G23 |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:99293 |
| By: | Mohammad R. Jahan-Parvar; Yuriy Kitsul; Jamil Rahman; Beth Anne Wilson |
| Abstract: | We document that foreign economic policy uncertainty (EPUF) has significant incremental predictive power for excess U.S. stock returns in the presence of domestic EPU, both in aggregate and for returns of portfolios constructed on firm characteristics, for 6 to 12-months-ahead horizons. We find that EPUF shocks primarily transmit to equity prices through cash flow news rather than the discount rate news channel. We examine whether responses of select macro-financial variables to an adverse EPUF shock are consistent with this transmission mechanism. Corporate investment outlays, payouts, and aggregate credit demand decline in response to such a shock. |
| Keywords: | Economic policy uncertainty; Cash flows; Discount rates; ICAPM, Return predictability; Transmission channels |
| JEL: | G11 G12 C13 E20 E30 |
| Date: | 2024–12–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1401 |
| By: | Barbaglia, Luca (European Commission - JRC); Bellia, Mario (European Commission - JRC); Di Girolamo, Francesca (European Commission - JRC); Rho, Caterina (European Commission - JRC) |
| Abstract: | Digital and crypto currencies are becoming an integral part of financial markets. Nevertheless, regulation of these markets seems still at an early stage and the literature evaluating the impact of policy interventions is scarce. We investigate the reaction of crypto markets in the aftermath of a policy announcement using textual information from news and sentiment analysis. Our findings are threefold. First, there is evidence of peaks in news about crypto-assets in correspondence of the date of new developments in EU legislation, in particular about Central Bank Digital currencies. Second, we find that both returns of cryptocurrencies and general stock market returns are directly proportional to the news sentiment about crypto markets. Third, our event study shows that the introduction of regulation on digital and crypto currencies is perceived as a negative shock by financial markets, especially for digital currencies. |
| Keywords: | cryptocurrencies, digital finance, text mining |
| JEL: | C55 E42 G41 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:jrs:wpaper:202407 |
| By: | Patrick Aldridge; Jabir Sandhu; Sofia Tchamova |
| Abstract: | We find that foreign central banks own a large share of Government of Canada (GoC) bonds and tend to hold their positions for longer than other types of asset managers. This buy-and-hold behaviour could offer benefits. For example, foreign central banks may be less likely than other asset managers to sell bonds and add to strains on market liquidity in periods of turmoil. However, foreign central banks’ buy-and-hold behaviour combined with their minimal lending of GoC bonds in securities-financing markets, as observed in our available data, can potentially lower liquidity because fewer GoC bonds are available for others to transact in secondary markets. Indeed, we find that higher levels of foreign central banks’ GoC bond holdings are related to lower liquidity. |
| Keywords: | Exchange rates; Financial institutions; Financial markets, Financial stability; Foreign reserves management; International financial markets; Market structure and pricing |
| JEL: | E5 E58 F3 F30 F31 G0 G01 G1 G11 G12 G15 G2 G23 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:24-26 |