Short Term Trading Models – Mean Reversion Trading Strategies and the Black Swan Events

32 Pages Posted: 11 Mar 2020

See all articles by Mark Babayev

Mark Babayev

WorldQuant University

Folakemi Lotun

WorldQuant University

Goodwill Tatenda Mumvenge

WorldQuant University

Ritabrata Bhattacharyya

WorldQuant University

Date Written: February 15, 2020

Abstract

This research analyzed the effectiveness of Black Swan strategies for the Short-Term Mean-Reversion systems, the risks and rewards profiles of such betting systems based on the S&P500 index. In determining the Black Swan events, the research made use of multiple strategies against two portfolios. By utilizing the python notebooks, signals created by the Black Swan and Bollinger Bands trading strategies were compared for performance against the baseline index (buy-and-hold strategy). This was followed by a validation of how risk mitigation techniques like the stop-loss affect the trading performance. The research concluded that it is possible to construct a Mean-Reverse strategy that outperforms the market over time.

Keywords: Mean-Reverse, Black Swans, Grey Swans, White Swans, Jarque Bera test, IsolationForest, outliers, Bollinger Bands, buy-and-hold, stop-loss

Suggested Citation

Babayev, Mark and Lotun, Folakemi and Mumvenge, Goodwill Tatenda and Bhattacharyya, Ritabrata, Short Term Trading Models – Mean Reversion Trading Strategies and the Black Swan Events (February 15, 2020). Available at SSRN: https://ssrn.com/abstract=3538891 or http://dx.doi.org/10.2139/ssrn.3538891

Mark Babayev (Contact Author)

WorldQuant University ( email )

Place St Charles
201 St Charles Ave #2500
New Orleans, LA 70170
United States

Folakemi Lotun

WorldQuant University ( email )

201 St Charles Ave #2500
New Orleaans, LA
United States

Goodwill Tatenda Mumvenge

WorldQuant University ( email )

Place St Charles
201 St Charles Ave #2500
New Orleans, LA 70170
United States

Ritabrata Bhattacharyya

WorldQuant University ( email )

Place St Charles
201 St Charles Ave #2500
New Orleans, LA 70170
United States

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