An Empirical Evaluation of Non-Linear Trading Rules
AbstractIn this paper we investigate the profitability of non-linear trading rules based on nearest neighbour predictors. Our results, based on applying this investment strategy to the New York Stock Exchange, suggest that, taking into account trading costs, the non-linear trading rule is superior to a risk-adjusted buy-and-hold strategy (both in terms of returns and of Sharpe ratios) for the 1998 and 1999 periods of upward trend. In contrast, for the relatively "stable" market period of 2000, we found that both strategies generate equal returns, although the risk-adjusted buy-and-hold strategy yields a higher Sharpe ratio.
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Bibliographic InfoPaper provided by FEDEA in its series Working Papers with number 2001-16.
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- Andrada-Félix Julián & Fernadez-Rodriguez Fernando & Garcia-Artiles Maria-Dolores & Sosvilla-Rivero Simon, 2003. "An Empirical Evaluation of Non-Linear Trading Rules," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 7(3), pages 1-32, October.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-16 (All new papers)
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