Abstract
The “buy-and-hold” strategy based on the EMH has been adopted by many investors for long. However, the global financial crisis in 2008 caused more doubt to be cast on EMH. Therefore, many scholars have attempted to create a trading strategy which can outperform the “buy-and-hold” strategy. In this study, we use the Shiryaev-Zhou index to derive a new generalized time-dependent strategy of which the moving-window size can be changed to see how the moving-window size affects the resulting profit of our strategy. We test our strategy on the securitized real estate and general equity indices of six economies, and find the optimal moving-window size for our strategy on each stock index. The results show that when the optimal moving-window size is used, our strategy outperforms the “buy-and-hold” strategy for most cases. Furthermore, during stock market downturns, it’s advisable to adopt our strategy, preferably with larger moving-window sizes, to prevent losses when the stock prices fall rapidly. However, during long periods of booms, it’s better to adhere to the “buy-and-hold” strategy. This implies that we should switch strategies when market fundamentals changes significantly. Property practitioners can also apply this strategy for a better portfolio management to increase their profit.
Highlights
The well-known “buy-and-hold” strategy is supported by many investors
This strategy is supported by the efficient market hypothesis (EMH) which says that at all times, stock prices fully reflect all available information and is fairly priced, so there is no point to trade, i.e. one should adhere to the “buy-and-hold” strategy
The following lists out our main results: 1) In general, when transaction costs increase, the optimal moving-window size for our strategy remains unchanged or increases
Summary
The well-known “buy-and-hold” strategy is supported by many investors. This is the motivation of our study To solve this problem, we make use of the ShiryaevZhou index to develop a new time-dependent trading strategy with a variable moving-window size, which was applied on a number of securitized real estate indices and general equity indices. We make use of the ShiryaevZhou index to develop a new time-dependent trading strategy with a variable moving-window size, which was applied on a number of securitized real estate indices and general equity indices We make this comparison because the real estate market has become more and more important recently, especially in Hong Kong and U.S The property sector (i.e. Hang Seng Property Index). For each economy, we compare the optimal moving-window sizes of our strategy on the securitized real estate index of that economy with that on the general equity index of that economy. A new time-dependent trading strategy for securitized real estate and equity indices
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