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On the Design of Profitable Index Based on the Mechanism of Random Tradings

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Intelligent Information and Database Systems (ACIIDS 2020)

Part of the book series: Communications in Computer and Information Science ((CCIS,volume 1178))

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Abstract

Designing profitable trading strategies is an issue of interest to many experts and scholars. There are thousands of strategies in financial markets, and almost all of them can be divided into two types: momentum-type and contrarian-type. However, there is no formal way to determine which type of strategies are suitable for each stock. This study proposes a method to quantify and classify the momentum-type and the contrarian-type stocks for investors, which makes the trading strategies more quantitative. Our approach uses the technique of random trading and the proposed profitable index to quantify the stock attributes. We take the constituted stocks of Taiwan’s 50 (TW50) as research objects. According to the experimental results, there are 8 stocks in TW50 that are suitable for contrarian-type trading strategies, and the others 42 stocks are suitable for momentum-type trading strategies. We also use simple momentum and contrarian strategies to evaluate the effectiveness of the proposed algorithms and index. The results show the positive correlation between the momentum-type (contrarian-type) profitable index and the trading performance, and the correlation coefficient achieves 77.3% (80.3%). In conclusion, the scale of momentum-type and contrarian-type profitability index actually represents the profitability and the attribute of the stock.

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Authors and Affiliations

  1. Department of Computer Science and Information Engineering, National Taiwan University, Taipei, Taiwan

    Jia-Hao Syu

  2. Department of Information and Finance Management, National Taipei University of Technology, Taipei, Taiwan

    Mu-En Wu & Shin-Huah Lee

  3. Institute of Information Science, Academia Sinica, Taipei, Taiwan

    Jan-Ming Ho

Authors
  1. Jia-Hao Syu
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  2. Mu-En Wu
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  3. Shin-Huah Lee
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  4. Jan-Ming Ho
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Corresponding author

Correspondence to Jia-Hao Syu .

Editor information

Editors and Affiliations

  1. Kielce University of Technology, Kielce, Poland

    Paweł Sitek

  2. Wrocław University of Science and Technology, Wrocław, Poland

    Marcin Pietranik

  3. Wrocław University of Science and Technology, Wrocław, Poland

    Marek Krótkiewicz

  4. King Mongkut's Institute of Technology Ladkrabang, Bangkok, Thailand

    Chutimet Srinilta

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Syu, JH., Wu, ME., Lee, SH., Ho, JM. (2020). On the Design of Profitable Index Based on the Mechanism of Random Tradings. In: Sitek, P., Pietranik, M., Krótkiewicz, M., Srinilta, C. (eds) Intelligent Information and Database Systems. ACIIDS 2020. Communications in Computer and Information Science, vol 1178. Springer, Singapore. https://doi.org/10.1007/978-981-15-3380-8_1

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  • DOI: https://doi.org/10.1007/978-981-15-3380-8_1

  • Published:

  • Publisher Name: Springer, Singapore

  • Print ISBN: 978-981-15-3379-2

  • Online ISBN: 978-981-15-3380-8

  • eBook Packages: Computer ScienceComputer Science (R0)

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