Decoding Black Swan: A Quantitative Approach to Tactical Stock Investing

Risk Management eJournal, Vol 4, Issue 3, January 11, 2012

18 Pages Posted: 12 Dec 2011 Last revised: 12 Jan 2012

See all articles by Dr.Jay Desai

Dr.Jay Desai

B.K.School of Business Management, Gujarat University

Dr. Ashwin G. Modi

Hemchandracharya North Gujarat University

Dr. Ashvin Ramchandra Dave

Pandit Deendayal Petroleum University

Kinjal Jay Desai

Corporate Solutions Group, SBI Life Insurance Co. Ltd.

Date Written: December 12, 2011

Abstract

In this paper we examine unanticipated outliers of stock market. Weather these outliers are truly Black Swans that can not be anticipated or they are avoidable? Also we try to evolve a quantitative strategy to earn superior returns. The simple strategy not only removes outliers from portfolio but also increases average daily returns from 0.05% to 0.35%. To test the risk return proposition we have used Sharpe ratio. We are also able to conclude that the daily Sharpe ratio shoots up 15 times in the results. We found increase in volatility in a declining market as Standard Deviation increases in declining market. We also conclude that returns are generated only during up trend in the market.

Keywords: Black Swan, Stock Investing, Outliers, Tactical, Technical Analysis, Seasonality, Quantitative, EMH, Market Timing

JEL Classification: G14

Suggested Citation

Desai, Jay and Modi, Ashwin Govindbhai and Dave, Dr. Ashvin Ramchandra and Desai, Kinjal Jay, Decoding Black Swan: A Quantitative Approach to Tactical Stock Investing (December 12, 2011). Risk Management eJournal, Vol 4, Issue 3, January 11, 2012. Available at SSRN: https://ssrn.com/abstract=1971322 or http://dx.doi.org/10.2139/ssrn.1971322

Jay Desai (Contact Author)

B.K.School of Business Management, Gujarat University ( email )

Navrangpura
Ahmedabad, Gujarat 380009
India

HOME PAGE: http://www.jaydesai.net

Ashwin Govindbhai Modi

Hemchandracharya North Gujarat University ( email )

Patan 384265
India

HOME PAGE: http://www.ngu.ac.in

Dr. Ashvin Ramchandra Dave

Pandit Deendayal Petroleum University ( email )

Raisan
Gandhinagar
Gandhinagar, 380015
India
+91-79-23275237 (Phone)

Kinjal Jay Desai

Corporate Solutions Group, SBI Life Insurance Co. Ltd. ( email )

401, Rain Drops Building
Opp.Cargo Motors, C.G.RO
Ahmedabad, Gujarat 380015
India

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