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Abstract Details
Activity Number:
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360
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Type:
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Contributed
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Date/Time:
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Tuesday, August 2, 2011 : 10:30 AM to 12:20 PM
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Sponsor:
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Business and Economic Statistics Section
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Abstract - #302713 |
Title:
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The Properties and Effectiveness of Filter Trading Rule
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Author(s):
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Ling Xin*+
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Companies:
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University of Hong Kong
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Address:
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Room 518, Meng Wah Complex, Hong Kong, , Hong Kong, China
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Keywords:
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filter rule ;
Markov switching model
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Abstract:
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Filter trading rule generates a sequence of buy/sell signals according to the following principle. If the asset price moves up at least 100d% from a low, the signal sequence will start with a buy. We then buy and hold the asset until the closing price moves down at least 100d% from a subsequent high, at which time a sell signal is generated and we simultaneously sell and go short. Here d is called the filter size of the filter trading rule. In this paper, we discuss the duration and profitability of filter trading rule and explore the problem of finding a suitable filter size to maximize the trading profit. We discussed existing contributions which are concentrated on random walk framework and then extend to Markov switching model. We constructed an absorbing Markov chain as well as a stationary Markov chain to separately study the durations and profits of filter trading under Markov switching markets. Numerical example under a market with mixture Bernoulli distributions is illustrated. The continuous time Markov switching model leads integral equations for the quantities in our problem.
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