|
|
|
|
||||
|
||||
Constructing the Best Trading Strategy: A New General FrameworkPhilip MayminNYU Poly - Department of Finance and Risk Engineering Zakhar MayminGerstein Fisher October 11, 2011 Abstract: We introduce a new general framework for constructing the best trading strategy for a given historical indicator. We construct the unique trading strategy with the highest expected return. This optimal strategy may be implemented directly, or its expected return may be used as a benchmark to evaluate how far away from the optimal other proposed strategies for the given indicators are. Separately, we also construct the unique trading strategy with the highest information ratio. In the normal case, when the traded security return is near zero, and for reasonable correlations, the performance differences are economically insignificant. However, when the correlation approaches one, the trading strategy with the highest expected return approaches its maximum information ratio of 1.32 while the trading strategy with the highest information ratio goes to infinity.
Number of Pages in PDF File: 33 Keywords: trading strategy, conditional, portfolio management, optimal, indicators JEL Classification: G11, G14, G17 working papers seriesDate posted: July 28, 2011 ; Last revised: October 12, 2011Suggested Citation |
|
|||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo4 in 0.406 seconds
