The Handbook of Trading: Strategies for Navigating and Profiting from Currency, Bond, and Stock Markets (McGraw-Hill Financial Education Series)

Make the post-meltdown markets work for you, using the unparalleled insight of today’s top global investing experts! “This book provides a collection of papers that examine trading execution, technical trading, and trading strategies, as well as algorithms in different markets (equities, forex, fixed income, exchange traded funds, derivatives, and commodities) around the world. This is particularly relevant given the recent explosion in trading volumes.” Tarun Chordia, R. Howard Dobbs Chair in Finance, Goizueta Business School, Emory University “This book uses a number of well-respected authors in the area of asset trading. It provides a comprehensive analysis of trading-related issues covering momentum trading, algorithmic trading, the use of technical trading rules, strategies for ETFs, and the role of trading volume.” Professor John Cotter, Director of the Centre for Financial Markets, University College Dublin School of Business, University College Dublin “ The Handbook of Trading is a good reference tool for both practitioners and academics. The contents cover a wide range of topical issues.” Professor Robert McGee, Director of the Center for Accounting, Auditing, and Tax Studies, College of Business Administration, Florida International University About the Book: Given today’s market volatility, even the most advanced investors can be unsure of their next move. Rather than rely on one or two individuals who claim general knowledge on any given investing topic, you need the advice of professionals who have spent their entire careers developing real expertise on more focused sectors of the market. The Handbook of Trading is the only book available that provides just that. Greg N. Gregoriou has amassed forty of the world’s top academics, researchers, and practitioners who explain how to make today’s markets work for you. With this highly technical but ultimately practical guide, you have access to a broad array of trading strategies that will put you light years ahead of the competition—regardless of the state of the market. From technical analysis and momentum trading to algorithmic and FOREX trading, The Handbook of Trading introduces you to techniques and insights never before published, each of which has been rigorously back-tested and analyzed. Chapters include: Performance Leakage and Value Discounts on the Toronto Stock Exchange Lawrence Kryzanowski and Skander Lazrak Trading in Turbulent Markets: Does Momentum Work? Tim A. Herberger and Daniel M. Kohlert Profitability of Technical Trading Rules in an Emerging Market Dimitris Kenourgios and Spyros Papathanasiou Leveraged Exchange-Traded Funds and Their Trading Strategies Narat Charupat The Impact of Algorithmic Trading Models on the Stock Market Ohannes G. Paskelian Applying critical lessons learned from the financial crisis of 2008–2009, the contributors explain how to approach turbulent market environments and adjust your trading methodologies accordingly. The Handbook of Trading is the go-to guide for financial professionals seeking profits in today’s currency, bond, and stock markets. Correlating PowerPoint slides and reading questions created by the contributors appear on http://www.mhprofessional.com/handbookoftrading. Contents 6 Editor 18 Contributors 20 Acknowledgments 34 Part I: Execution and Momentum Trading 36 Chapter 1 Performance Leakage and Value Discounts on the Toronto Stock Exchange 38 Abstract 38 Introduction 39 Sample and Data 40 Measures of Performance Leakage and Value Discounts 40 Empirical Estimates for the TSX 42 Conclusion 53 Acknowledgments 53 References 54 Notes 55 Chapter 2 Informed Trading in Parallel Auction and Dealer Markets: The Case of the London Stock Exchange 58 Abstract 58 Introduction 58 Trading Systems and Venues 59 Institutional Background, Data, and Methodology 62 Empirical Results 65 Conclusion 70 Acknowledgments 71 References 71 Notes 55 Chapter 3 Momentum Trading for the Private Investor 74 Abstract 74 Introduction 74 Data 75 Momentum Trading Results 76 Robustness Tests 80 Trading with a Volume Filter 82 Private Investor Trading 84 Conclusion 85 Acknowledgments 86 References 86 Notes 87 Chapter 4 Trading in Turbulent Markets: Does Momentum Work? 88 Abstract 88 Introduction 88 Literature Review 89 Data and Methodology 90 Results 92 Conclusion 97 References 98 Notes 100 Chapter 5 The Financial Futures Momentum 102 Abstract 102 Introduction 102 Literature Review 103 Data 104 Methodology and Results 104 Conclusion 112 Acknowledgments 114 References 114 Notes 115 Chapter 6 Order Placement Strategies in Different Market Structures: A Primer 118 Abstract 118 Introduction 118 Costs and Benefits of Limit Order Trading 119 Trading in a Continuous Order-Driven Market 121 Trading in a Call Auction 124 Conclusion 126 References 127 Part II: Technical Trading 130 Chapter 7 Profitability of Technical Trading Rules in an Emerging Market 132 Abstract 132 Introduction 133 Methodology 135 Data and Empirical Results 138 Conclusion 143 References 144 Notes 146 Chapter 8 Testing Technical Trading Rules as Portfolio Selection Strategies 148 Introduction 148 Data 150 Portfolio Formation 151 Bootstrap Experiment 157 Conclusion 159 Acknowledgments 161 References 161 Notes 162 Chapter 9 Do Technical Trading Rules Increase the Probability of Winning? Empirical Evidence from the Foreign Exchange Market 164 Abstract 164 Introduction 165 Empirical Methodology 166 Empirical Results 170 Conclusion 174 References 175 Chapter 10 Technical Analysis in Turbulent Financial Markets: Does Nonlinearity Assist? 176 Abstract 176 Introduction 177 Nonlinear Modeling for Technical Analysis 178 Data and Empirical Results 182 Conclusion 185 References 185 Notes 188 Chapter 11 Profiting from the Dual-Moving Average Crossover with Exponential Smoothing 190 Abstract 190 Introduction 191 Background on the Moving Averages 192 Methodology 194 Data 196 Trading with the Exponentially Smoothed DMACO 197 Conclusion 202 References 203 Notes 205 Chapter 12 Shareholder Demands and the Delaware Derivative Action 206 Abstract 206 Introduction 206 Policy Purposes for Derivative Actions 208 Demand Requirements 209 Standing to Sue Derivatively 213 Futility Excuses the Demand Requirement 214 Futility, Director Independence, and Business Judgment 215 Conclusion 216 Acknowledgments 217 References 218 Part III: Exchange-Traded Fund Strategies 222 Chapter 13 Leveraged Exchange-Traded Funds and Their Trading Strategies 224 Abstract 224 Introduction 224 Trading Strategies 225 Conclusion 232 References 232 Notes 232 Chapter 14 On the Impact of Exchange-Traded Funds over Noise Trading: Evidence from European Stock Exchanges 234 Abstract 234 Introduction 234 Data 236 Methodology 236 Descriptive Statistics 239 Results; Conclusion 239 References 246 Notes 246 Chapter 15 Penetrating Fixed-Income Exchange-Traded Funds 248 Abstract 248 Introduction 248 Methodology 250 Data and Statistics 252 Empirical Results 255 Conclusion 264 References 266 Chapter 16 Smooth Transition Autoregressive Models for the Day-of-the-Week Effect: An Application to the S&P 500 Index 268 Abstract 268 Introduction 268 Literature Review 269 Methodology 270 Data 273 Empirical Results 274 Conclusion 284 References 285 Part IV: Foreign Exchange Markets, Algorithmic Trading, and Risk 288 Chapter 17 Disparity of USD Interbank Interest Rates in Hong Kong and Singapore: Is There any Arbitrage Opportunity? 290 Abstract 290 Introduction 290 HIBOR and SIBOR 291 Data And Findings 292 Explanations for the HIBOR-SIBOR Disparity 294 Conclusion 295 References 296 Chapter 18 Forex Trading Opportunities Through Prices Under Climate Change 298 Abstract 298 Introduction 298 Methodology 302 Data and Empirical Application 306 Conclusion 309 References 309 Chapter 19 The Impact of Algorithmic Trading Models on the Stock Market 310 Abstract 310 Introduction 311 The Impact of Algorithmic Trading on the Market 312 Algorithmic Strategies 314 Algorithmic Trading Advantages 316 Algorithmic Trading Beyond Stock Markets 317 Conclusion 317 References 318 Chapter 20 Trading in Risk Dimensions 322 Abstract 322 Introduction 322 Data 323 Exponential Marginal Distribution Models 323 Copula Transformation 324 Portfolio Distribution 328 Risk Management 329 Sampling Multivariate Normal Distribution 330 Conclusion 332 References 333 Chapter 21 Development of a Risk-Monitoring Tool Dedicated to Commodity Trading 336 Abstract 336 Introduction 336 Literature Review 338 Methodology 340 Conclusion 348 Resources 349 Part V: Trading Volume And Behavior 352 Chapter 22 Securities Trading, Asymmetric Information, and Market Transparency 354 Abstract 354 Introduction 355 Experimental Design and Terminology 358 Data 361 Results 363 Conclusion 372 Acknowledgments 373 References 374 Notes 376 Chapter 23 Arbitrage Risk and the High- Volume Return Premium 378 Abstract 378 Introduction 378 Data and Method 379 Tests 381 Conclusion 383 References 384 Chapter 24 The Impact of Hard versus Soft Information on Trading Volume: Evidence from Management Earnings Forecasts 386 Abstract 386 Introduction 387 Data and Methodology 388 Empirical Results 391 Conclusion 396 References 397 Chapter 25 Modeling Bubbles and Anti-Bubbles in Bear Markets: A Medium-Term Trading Analysis 400 Abstract 400 Introduction 400 Log-Periodic Models: A Review 402 Empirical Analysis with World Stock Market Indexes 407 Out-of-Sample Empirical Analysis 416 Conclusion 422 References 422 Chapter 26 Strategic Financial Intermediaries with Brokerage Activities 424 Abstract 424 Introduction 425 The Benchmark Model: No Noise Is Observed 427 The General Model: When Some Noise Is Observed 429 Conclusion 433 References 433 Appendix 434 Chapter 27 Financial Markets, Investment Analysis, and Trading in Primary and Secondary Markets 438 Abstract 438 Introduction 439 Investment Analysis and Types of Trading 439 Composition of Trading Volume and Trading 441 Trading in Primary Versus Secondary Markets 442 Conclusion 447 References 447 Chapter 28 Trading and Overconfidence 452 Abstract 452 Introduction 452 Data 453 Empirical Results 455 Conclusion 460 References 461 Notes 462 Chapter 29 Correlated Asset Trading and Disclosure of Private Information 464 Abstract 464 Introduction 464 The Model 468 Disclosure of Information and Market Liquidity 471 Conclusion 475 Acknowledgments 475 References 475 Index 478 A 478 B 479 C 480 D 481 E 482 F 483 G 484 H 485 I 485 J 486 K 486 L 487 M 488 N 489 O 489 P 490 Q 491 R 491 S 492 T 494 U 496 V 496 W 497 X 497 Y 497 Z 497 0071743537,9780071743532,0071743545,9780071743549 Contents......Page 6 Editor......Page 18 Contributors......Page 20 Acknowledgments......Page 34 Part I: Execution and Momentum Trading......Page 36 Abstract......Page 38 Introduction......Page 39 Measures of Performance Leakage and Value Discounts......Page 40 Empirical Estimates for the TSX......Page 42 Acknowledgments......Page 53 References......Page 54 Notes......Page 55 Introduction......Page 58 Trading Systems and Venues......Page 59 Institutional Background, Data, and Methodology......Page 62 Empirical Results......Page 65 Conclusion......Page 70 References......Page 71 Introduction......Page 74 Data......Page 75 Momentum Trading Results......Page 76 Robustness Tests......Page 80 Trading with a Volume Filter......Page 82 Private Investor Trading......Page 84 Conclusion......Page 85 References......Page 86 Notes......Page 87 Introduction......Page 88 Literature Review......Page 89 Data and Methodology......Page 90 Results......Page 92 Conclusion......Page 97 References......Page 98 Notes......Page 100 Introduction......Page 102 Literature Review......Page 103 Methodology and Results......Page 104 Conclusion......Page 112 References......Page 114 Notes......Page 115 Introduction......Page 118 Costs and Benefits of Limit Order Trading......Page 119 Trading in a Continuous Order-Driven Market......Page 121 Trading in a Call Auction......Page 124 Conclusion......Page 126 References......Page 127 Part II: Technical Trading......Page 130 Abstract......Page 132 Introduction......Page 133 Methodology......Page 135 Data and Empirical Results......Page 138 Conclusion......Page 143 References......Page 144 Notes......Page 146 Introduction......Page 148 Data......Page 150 Portfolio Formation......Page 151 Bootstrap Experiment......Page 157 Conclusion......Page 159 References......Page 161 Notes......Page 162 Abstract......Page 164 Introduction......Page 165 Empirical Methodology......Page 166 Empirical Results......Page 170 Conclusion......Page 174 References......Page 175 Abstract......Page 176 Introduction......Page 177 Nonlinear Modeling for Technical Analysis......Page 178 Data and Empirical Results......Page 182 References......Page 185 Notes......Page 188 Abstract......Page 190 Introduction......Page 191 Background on the Moving Averages......Page 192 Methodology......Page 194 Data......Page 196 Trading with the Exponentially Smoothed DMACO......Page 197 Conclusion......Page 202 References......Page 203 Notes......Page 205 Introduction......Page 206 Policy Purposes for Derivative Actions......Page 208 Demand Requirements......Page 209 Standing to Sue Derivatively......Page 213 Futility Excuses the Demand Requirement......Page 214 Futility, Director Independence, and Business Judgment......Page 215 Conclusion......Page 216 Acknowledgments......Page 217 References......Page 218 Part III: Exchange-Traded Fund Strategies......Page 222 Introduction......Page 224 Trading Strategies......Page 225 Notes......Page 232 Introduction......Page 234 Methodology......Page 236 Results; Conclusion......Page 239 Notes......Page 246 Introduction......Page 248 Methodology......Page 250 Data and Statistics......Page 252 Empirical Results......Page 255 Conclusion......Page 264 References......Page 266 Introduction......Page 268 Literature Review......Page 269 Methodology......Page 270 Data......Page 273 Empirical Results......Page 274 Conclusion......Page 284 References......Page 285 Part IV: Foreign Exchange Markets, Algorithmic Trading, and Risk......Page 288 Introduction......Page 290 HIBOR and SIBOR......Page 291 Data And Findings......Page 292 Explanations for the HIBOR-SIBOR Disparity......Page 294 Conclusion......Page 295 References......Page 296 Introduction......Page 298 Methodology......Page 302 Data and Empirical Application......Page 306 References......Page 309 Abstract......Page 310 Introduction......Page 311 The Impact of Algorithmic Trading on the Market......Page 312 Algorithmic Strategies......Page 314 Algorithmic Trading Advantages......Page 316 Conclusion......Page 317 References......Page 318 Introduction......Page 322 Exponential Marginal Distribution Models......Page 323 Copula Transformation......Page 324 Portfolio Distribution......Page 328 Risk Management......Page 329 Sampling Multivariate Normal Distribution......Page 330 Conclusion......Page 332 References......Page 333 Introduction......Page 336 Literature Review......Page 338 Methodology......Page 340 Conclusion......Page 348 Resources......Page 349 Part V: Trading Volume And Behavior......Page 352 Abstract......Page 354 Introduction......Page 355 Experimental Design and Terminology......Page 358 Data......Page 361 Results......Page 363 Conclusion......Page 372 Acknowledgments......Page 373 References......Page 374 Notes......Page 376 Introduction......Page 378 Data and Method......Page 379 Tests......Page 381 Conclusion......Page 383 References......Page 384 Abstract......Page 386 Introduction......Page 387 Data and Methodology......Page 388 Empirical Results......Page 391 Conclusion......Page 396 References......Page 397 Introduction......Page 400 Log-Periodic Models: A Review......Page 402 Empirical Analysis with World Stock Market Indexes......Page 407 Out-of-Sample Empirical Analysis......Page 416 References......Page 422 Abstract......Page 424 Introduction......Page 425 The Benchmark Model: No Noise Is Observed......Page 427 The General Model: When Some Noise Is Observed......Page 429 References......Page 433 Appendix......Page 434 Abstract......Page 438 Investment Analysis and Types of Trading......Page 439 Composition of Trading Volume and Trading......Page 441 Trading in Primary Versus Secondary Markets......Page 442 References......Page 447 Introduction......Page 452 Data......Page 453 Empirical Results......Page 455 Conclusion......Page 460 References......Page 461 Notes......Page 462 Introduction......Page 464 The Model......Page 468 Disclosure of Information and Market Liquidity......Page 471 References......Page 475 A......Page 478 B......Page 479 C......Page 480 D......Page 481 E......Page 482 F......Page 483 G......Page 484 I......Page 485 K......Page 486 L......Page 487 M......Page 488 O......Page 489 P......Page 490 R......Page 491 S......Page 492 T......Page 494 V......Page 496 Z......Page 497 Make the post-meltdown markets work for you, using the unparalleled insight of today's top global investing experts! "This book provides a collection of papers that examine trading execution, technical trading, and trading strategies, as well as algorithms in different markets (equities, forex, fixed income, exchange traded funds, derivatives, and commodities) around the world. This is particularly relevant given the recent explosion in trading volumes." Tarun Chordia, R. Howard Dobbs Chair in Finance, Goizueta Business School, Emory University "This book uses a number of well-respected authors in the area of asset trading. It provides a comprehensive analysis of trading-related issues covering momentum trading, algorithmic trading, the use of technical trading rules, strategies for ETFs, and the role of trading volume." Professor John Cotter, Director of the Centre for Financial Markets, University College Dublin School of Business, University College Dublin " The Handbook of Trading is a good reference tool for both practitioners and academics. The contents cover a wide range of topical issues." Professor Robert McGee, Director of the Center for Accounting, Auditing, and Tax Studies, College of Business Administration, Florida International University About the Book: Given today's market volatility, even the most advanced investors can be unsure of their next move. Rather than rely on one or two individuals who claim general knowledge on any given investing topic, you need the advice of professionals who have spent their entire careers developing real expertise on more focused sectors of the market. The Handbook of Trading is the only book available that provides just that. Greg N. Gregoriou has amassed forty of the world's top academics, researchers, and practitioners who explain how to make today's markets work for you. With this highly technical but ultimately practical guide, you have access to a broad array of trading strategies that will put you light years ahead of the competition--regardless of the state of the market. From technical analysis and momentum trading to algorithmic and FOREX trading, The Handbook of Trading introduces you to techniques and insights never before published, each of which has been rigorously back-tested and analyzed. Chapters include: Performance Leakage and Value Discounts on the Toronto Stock Exchange Lawrence Kryzanowski and Skander Lazrak Trading in Turbulent Markets: Does Momentum Work? Tim A. Herberger and Daniel M. Kohlert Profitability of Technical Trading Rules in an Emerging Market Dimitris Kenourgios and Spyros Papathanasiou Leveraged Exchange-Traded Funds and Their Trading Strategies Narat Charupat The Impact of Algorithmic Trading Models on the Stock Market Ohannes G. Paskelian Applying critical lessons learned from the financial crisis of 2008-2009, the contributors explain how to approach turbulent market environments and adjust your trading methodologies accordingly. The Handbook of Trading is the go-to guide for financial professionals seeking profits in today's currency, bond, and stock markets. Correlating PowerPoint slides and reading questions created by the contributors appear on http: //(http://www.mhprofessional.com/handbookoftrading) www.mhprofessional.com/handbookoftrading . In The Handbook of Trading, an international team of experts, academics, and researchers offers a potent mix of insightful theory and proven trading techniques, providing institutional traders with the supplementary tools and strategies they need to get ahead in the global capital markets.