Optimization of investment management in Warsaw stock market

• Authors: Maciej Janowicz , Arkadiusz Orłowski , Franciszek Michał Warzyński
• Languages of publication: EN

Abstracts

EN

Application of simple prescriptions of technical analysis on the Warsaw Exchange Market (GPW) has been analyzed using several stocks belonging to WIG20 group as examples. Only long positions have been considered. Three well-known technical-analysis indicators of the market have been investigated: the Donchian channels, the Relative Strength Index, and Moving Average Convergence-Divergence indicator. Optimal values of parameters of those indicators have been found by „brute force“ evaluation of (linear) returns. It has been found that trading based on both Donchian channels and Relative Strength Index easily outperform the „buy and hold“ strategy if supplied with optimal values of parameters. However, those optimal values are by now means universal in the sense that they depend on particular stocks, and are functions of time. The optimal management of capital in the stock market strongly depends on the time perspective of trading. Finally, it has been argued that the criticism of technical analysis which is often delivered by academic quantitative financial science is unjustified as based of false premises.

Keywords

EN

Warsaw Exchange Markets; technical analysis; indicators of the market

• Publisher: Sciendo
• Journal: Przedsiębiorczość i Zarządzanie
• Year: 2014
• Volume: 15
• Issue: 2
• Pages: 143-156

Dates

online

2014-08-15

Contributors

author

Maciej Janowicz

• Warsaw Univesity of Life Sciences (SGGW)

author

Arkadiusz Orłowski

• Warsaw Univesity of Life Sciences (SGGW)

author

Franciszek Michał Warzyński

• University of Social Sciences

References

• Allen F., Karjalainen R. (1999), Using genetic algorithms to find technical trading rules, “ Journal of Financial Economics”, 51, pp. 245–271.
• Brock W., Lakonishok J., LeBaron B. (1992), Simple Technical Trading Rules and the Stochastic Properties of Stock Returns, “Journal of Finance”, 47, pp. 1731–1764.
• Fama E.F., Blume M. (1966), Filter Rules and Stock-Market Trading,”Journal of Business”, 39, pp. 226–241.[Crossref]
• Farlex (2012), Farlex Financial Dictionary, http://fnancial-dictionary. thefreedictionary.com/Donchian+channel.
• Kaufman P.J. (2013), Trading Systems and Methods, Wiley, New York.
• Lo A.W., MacKinley A.C. (1988), Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test, “Review of Financial Studies”, 1, pp. 41– 66.
• Lo A.W., MacKinley A.C. (1999), A Non-Random Walk down Wall Street, Princeton University Press.
• Lo A.W., Mamayski H., Wang J. (2000), Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation, “Journal of Finance”, 40, pp. 1705–1765.[Crossref]
• Malkiel B. (1981), A Random Walk Down Wall Street, Norton, New York.
• Murphy J. (1999), Technical Analysis of Financial Markets, New York Institute of Finance.
• Wilder Jr. J.W. (1978), New Concepts in Technical Trading Systems, Trend Research, New York.

Identifiers

DOI

10.2478/eam-2014-0023