Abstract
The “buy-and-hold” strategy based on the EMH was believed by many people to be optimal for a long time. However, there has been more criticism on the EMH since the global financial crisis in 2008. Hence many people attempt to find a trading strategy to beat “buy-and-hold”. Moreover, the financial market fluctuates a lot. Sometimes it is in a bull market, but it may be in a bear market during other periods of time, so the optimal strategy during different periods of time may vary and hence switching of strategies may be necessary. In this study, we apply Hui and Chan (2018)’s generalized time-dependent strategy on 12 Hong Kong listed stocks during the whole period of observation and two sub-periods. The results show that when the sub-period December 31, 2004–December 31, 2008 is chosen, the strategy outperforms “buy-and-hold” by the largest extent. This reflects that the strategy is most effective during adverse market conditions. This study can help investors to apply appropriate trading strategies to earn more profits, and help property practitioners to improve their strategic property management to increase the value of their portfolio.
Highlights
Many investors adhere to the “buy-and-hold” strategy supported by the efficient market hypothesis (EMH), which tells that stock prices always fully reflect all available information and is fairly priced, so there is no point to trade
The main results are listed as follows: 1) Strategy 2 outperforms “buy-and-hold” overwhelmingly, but Strategy 3 generally underperforms “buyand-hold”, reflecting that our strategy is more effective during bear markets than during bull markets
The stock prices rise during some times, but fall during other times, so changing the period of observation may affect the excess profit of our strategies over “buy-and-hold”
Summary
Many investors adhere to the “buy-and-hold” strategy supported by the efficient market hypothesis (EMH), which tells that stock prices always fully reflect all available information and is fairly priced, so there is no point to trade. In light of this, Hui and Chan (2018) construct a new, generalized time-dependent trading strategy with a variable moving-window size, and apply the generalized strategy on securitized real estate indices and general equity indices of six economies: Hong Kong, Japan, U.S, U.K., France and Germany, during the period December 29, 1995–December 31, 2014. They find that their strategy outperforms the “buy-and-hold” strategy for slightly more than half of the cases.
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