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A comparison of MA and RSI returns with exchange rate intervention

A comparison of MA and RSI returns with exchange rate intervention. Group Members: Zhang Duo A0075433 Tang Wai Hoh A0075413 Fan Li A0075376. outline. Introduction of the paper Data & Trading Strategy Methodology & Empirical Results Work in Progress & Future Exploration.

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A comparison of MA and RSI returns with exchange rate intervention

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  1. A comparison of MA and RSI returns with exchange rate intervention Group Members: Zhang Duo A0075433 Tang Wai Hoh A0075413 Fan Li A0075376

  2. outline • Introduction of the paper • Data & Trading Strategy • Methodology & Empirical Results • Work in Progress & Future Exploration

  3. Introduction of the Paper

  4. Introduction of the Paper • TOPIC: A comparison of MA and RSI returns with exchange rate intervention • Authors: Thomas C. Shik and Terence Tai-Leung Chong • Structure: • Two Trading Strategies: MA & RSI • Six Currencies: AUD/USD, CHF/USD, DEM/USD, JPY/USD, BP/USD, EUR/USD • Three Panels: Panel A: All observations Panel B: Remove domestic & foreign interests Panel C: Remove factor of intervention

  5. Report Structure

  6. Data

  7. DATA of the Paper

  8. DATA of Our Research • Foreign Exchange Rates • Resource 1 : H.10 Federal Reserve Statistical Release (since 1971) http://www.federalreserve.gov/releases/h10/hist/default1989.htm • Resource 2: Yahoo Finance (since 27 Dec 2007) http://sg.finance.yahoo.com/q/hp?s=GBB • Interest Rates(Some) • Resource 3: Bloomberg (since 2001) • Intervention Data(Only One) • Resource 4: JPY/USD Intervention Data(Apr 1991-Mar 2001) http://www.mof.go.jp/english/feio/e034_133.htm • Risk-free Rate(Done) • Resource 5: H.15 Federal Reserve Statistical Release (since 1977) http://www.federalreserve.gov/releases/h15/data/Business_day/H15_TCMNOM_Y30.txt

  9. Trading Strategy

  10. ACF s for Exchange Rate Series • Serially Correlated possible to make profits by investigating its history Define: Regression: Serially Correlated!!

  11. Trading Strategies MA RSI • Definition • Long the USD if • Short the USD if • Definition • Long the USD if • Short the USD if Note: Pt : Exchange rate at time t, N: Number of days.

  12. Trading Strategies RSI in General Form ----Average of N days up prices ----Average of N days down prices RSI in the paper -SMA RSI in algoquant -EMA

  13. Methodology & Empirical Results

  14. Methodology & Empirical Result • Mean Annual Returns & Standard Deviation • Hypothesis Testing t-statistic • Sharpe Ratios

  15. Mean Annual Returns • Window widths for the study are 10-, 20-, 50- and 150- days. • Daily returns: • Removing interest rate differentials: Note: rt* = foreign interest rate, rt is the domestic interest rate

  16. Total Returns • Sum of daily returns: • Average return from time 0 to T: • Mean Annual Returns is computed by multiplying with the number of trading days.

  17. Hypothesis Testing • Let μ and σ be the mean and standard deviation of the daily returns respectively. • Sample mean: • Hypothesis H0 : μ = 0 vs H1: μ ≠ 0 tested using. - Efficient market with no arbitrage has a mean zero. • S = sample standard deviation

  18. Sharpe Ratios • be the mean annual return and be standard deviation. • Rfis the risk-free rate. measure of the excess return (or risk premium) per unit of risk in an investment asset or a trading strategy

  19. Statistic terms in the Tables • Obs. : number of observations. • Mean : mean annual return in percentage. • Std (daily returns) : standard deviation of the daily returns. • t-stat : t-statistic value. • P-value : tail probability generated by the observed test statistic under the null hypothesis.

  20. Report Structure

  21. Work in Progress & Future Exploration

  22. Work in Progress EUR/USD – 50-days window width

  23. Work in Progress EUR/USD – 50-days window width

  24. Work in Progress JYN/USD – 50-days window width

  25. Work in Progress JYN/USD – 50-days window width

  26. Work in Progress GBP/USD – 10-days window width

  27. Work in Progress GBP/USD – 10-days window width

  28. Current Challenges • Quotation data other than Yahoo Finance • How to store the data/dates at the crossover points and then to do the return analysis (mean, std, t-stat, P-value, Sharpe ratios) • Obstacles in getting information regarding government interventions and interest rate

  29. Further Exploration • Simulate results under Panel A & C (Domestic/Foreign interest rates & GOV interventions) • Introducing other MA model (i.e. EMA) • Include transaction cost • Include two more bounds for RSI a) >70 – overbought - SELL b) <30 – oversold - BUY

  30. RSI with 30, 50, 70 bounds Hit 70 from below: Sell Hit 50 from above: Sell Hit 50 from below: Buy Hit 30 from above: Buy

  31. Q & AThank You!

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