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A comparison of MA and RSI returns with exchange rate intervention. Group Members: Zhang Duo A0075433 Tang Wai Hoh A0075413 Fan Li A0075376. outline. Introduction of the paper Data & Trading Strategy Methodology & Empirical Results Work in Progress & Future Exploration.

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a comparison of ma and rsi returns with exchange rate intervention

A comparison of MA and RSI returns with exchange rate intervention

Group Members:

Zhang Duo A0075433

Tang Wai Hoh A0075413

Fan Li A0075376

outline
outline
  • Introduction of the paper
  • Data & Trading Strategy
  • Methodology & Empirical Results
  • Work in Progress & Future Exploration
introduction of the paper1
Introduction of the Paper
  • TOPIC: A comparison of MA and RSI returns with

exchange rate intervention

  • Authors: Thomas C. Shik and Terence Tai-Leung Chong
  • Structure:
  • Two Trading Strategies: MA & RSI
  • Six Currencies: AUD/USD, CHF/USD, DEM/USD, JPY/USD, BP/USD, EUR/USD
  • Three Panels:

Panel A: All observations

Panel B: Remove domestic & foreign interests

Panel C: Remove factor of intervention

data of our research
DATA of Our Research
  • Foreign Exchange Rates
  • Resource 1 : H.10 Federal Reserve Statistical Release (since 1971)

http://www.federalreserve.gov/releases/h10/hist/default1989.htm

  • Resource 2: Yahoo Finance (since 27 Dec 2007)

http://sg.finance.yahoo.com/q/hp?s=GBB

  • Interest Rates(Some)
  • Resource 3: Bloomberg (since 2001)
  • Intervention Data(Only One)
  • Resource 4: JPY/USD Intervention Data(Apr 1991-Mar 2001)

http://www.mof.go.jp/english/feio/e034_133.htm

  • Risk-free Rate(Done)
  • Resource 5: H.15 Federal Reserve Statistical Release (since 1977)

http://www.federalreserve.gov/releases/h15/data/Business_day/H15_TCMNOM_Y30.txt

acf s for exchange rate series
ACF s for Exchange Rate Series
  • Serially Correlated possible to make profits by

investigating its history

Define:

Regression:

Serially Correlated!!

trading strategies
Trading Strategies

MA

RSI

  • Definition
  • Long the USD if
  • Short the USD if
  • Definition
  • Long the USD if
  • Short the USD if

Note: Pt : Exchange rate at time t, N: Number of days.

trading strategies1
Trading Strategies

RSI in General Form

----Average of N days up prices

----Average of N days down prices

RSI in the paper

-SMA

RSI in algoquant

-EMA

methodology empirical result
Methodology & Empirical Result
  • Mean Annual Returns & Standard Deviation
  • Hypothesis Testing t-statistic
  • Sharpe Ratios
mean annual returns
Mean Annual Returns
  • Window widths for the study are 10-, 20-, 50- and 150- days.
  • Daily returns:
  • Removing interest rate differentials:

Note: rt* = foreign interest rate, rt is the domestic interest rate

total returns
Total Returns
  • Sum of daily returns:
  • Average return from time 0 to T:
  • Mean Annual Returns is computed by multiplying with the number of trading days.
hypothesis testing
Hypothesis Testing
  • Let μ and σ be the mean and standard deviation of the daily returns respectively.
  • Sample mean:
  • Hypothesis H0 : μ = 0 vs H1: μ ≠ 0 tested using.

- Efficient market with no arbitrage has a mean zero.

  • S = sample standard deviation
sharpe ratios
Sharpe Ratios
  • be the mean annual return and be standard deviation.
  • Rfis the risk-free rate.

measure of the excess return (or risk premium) per unit of risk in an investment asset or a trading strategy

statistic terms in the tables
Statistic terms in the Tables
  • Obs. : number of observations.
  • Mean : mean annual return in percentage.
  • Std (daily returns) : standard deviation of the daily returns.
  • t-stat : t-statistic value.
  • P-value : tail probability generated by the observed test statistic under the null hypothesis.
work in progress
Work in Progress

EUR/USD – 50-days window width

work in progress1
Work in Progress

EUR/USD – 50-days window width

work in progress2
Work in Progress

JYN/USD – 50-days window width

slide25

Work in Progress

JYN/USD – 50-days window width

slide26

Work in Progress

GBP/USD – 10-days window width

slide27

Work in Progress

GBP/USD – 10-days window width

current challenges
Current Challenges
  • Quotation data other than Yahoo Finance
  • How to store the data/dates at the crossover

points and then to do the return analysis

(mean, std, t-stat, P-value, Sharpe ratios)

  • Obstacles in getting information regarding

government interventions and interest rate

further exploration
Further Exploration
  • Simulate results under Panel A & C

(Domestic/Foreign interest rates & GOV interventions)

  • Introducing other MA model (i.e. EMA)
  • Include transaction cost
  • Include two more bounds for RSI

a) >70 – overbought - SELL

b) <30 – oversold - BUY

rsi with 30 50 70 bounds
RSI with 30, 50, 70 bounds

Hit 70 from below:

Sell

Hit 50 from above:

Sell

Hit 50 from below:

Buy

Hit 30 from above:

Buy

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