Abstract
he spread of Covid-19 in Europe has affected our way of living, thinking, and even investing. The fear of the epidemic caused a context of maximum uncertainty and volatility in financial markets, which were driven by fear of the spread of the epidemic. In this article we propose an algorithmic trading system on the future of the Eurostoxx 50 that, instead of following technical indicators, follows the number of cases confirmed by Covid-19 in Europe. The back test of this system carried out throughout the weeks of confinement shows that the system is profitable. In this context, confirmed cases data is useful to assess investors’ mood and anticipate the evolution of the market. Therefore, an alternative way of investing arises for maximum uncertainty contexts, based exclusively on behavioral finance.
Highlights
We focus on the European stock market and its most representative index, the Euroxotxx 50, during the lockdown caused by the Covid-19 epidemic
Sending buy and sell orders to the market for a certain financial instrument, algorithmic trading systems invest in financial markets without manual intervention, following the investment signals issued by an algorithm
Gómez-Martínez (2013) elaborated a “Risk Aversion Index” based on the stats of Google Trends for certain economic and financial terms that relate to market growth. He shows that Google Trends provide relevant information on the growth of financial markets and may generate investment signs that can be used to predict the growth of major European stock markets. Could this indicator be valid to measure the fear of COVID-19 and anticipate the evolution of the financial market? According to this approach, we propose an algorithmic trading system that issues buy and sell orders by measuring the level of aversion to risk, in this case measured by the confirmed cases of Covid-19
Summary
This paper explores the behavioral finance capacity to anticipate market trends. In this case, we focus on the European stock market and its most representative index, the Euroxotxx 50, during the lockdown caused by the Covid-19 epidemic. Sending buy and sell orders to the market for a certain financial instrument, algorithmic trading systems invest in financial markets without manual intervention, following the investment signals issued by an algorithm. Most of the trading systems that are operating nowadays follows Chartism rules, but the irruption of big data in asset management has opened a new approach for algorithmic trading
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