The Handbook of Trading: Strategies for Navigating And
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The HANDBOOK of TRADING Other McGraw-Hill Books Edited by Greg N. Gregoriou The Credit Derivatives Handbook: Global Perspectives, Innovations, and Market Drivers (2008, with Paul U. Ali) The Handbook of Credit Portfolio Management (2008, with Christian Hoppe) The Risk Modeling Evaluation Handbook (2010, with Christian Hoppe and Carsten S. Wehn) The VaR Implementation Handbook (2009) The VaR Modeling Handbook: Practical Applications in Alternative Investing, Banking, Insurance, and Portfolio Management (2009) The HANDBOOK of TRADING STRATEGIES FOR NAVIGATING AND PROFITING FROM CURRENCY, BOND, AND STOCK MARKETS Greg N. Gregoriou Editor New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. 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CONTENTS EDITOR xvii CONTRIBUTORS xix ACK NOWLEDGMENTS xxxiii PART I EXECUTION AND MOMENTUM TR ADING 1 CHAPTER 1 Performance Leakage and Value Discounts on the Toronto Stock Exchange 3 Lawrence Kryzanowski and Skander Lazrak Abstract 3 Introduction 4 Sample and Data 5 Measures of Performance Leakage and Value Discounts 5 Empirical Estimates for the TSX 7 Conclusion 18 Acknowledgments 18 References 19 Notes 20 CHAPTER 2 Informed Trading in Parallel Auction and Dealer Markets: The Case of the London Stock Exchange 23 Pankaj K. Jain, Christine Jiang, Thomas H. McInish, and Nareerat Taechapiroontong Abstract 23 Introduction 23 Trading Systems and Venues 24 Institutional Background, Data, and Methodology 27 v vi contents Empirical Results 30 Conclusion 35 Acknowledgments 36 References 36 Notes 38 CHAPTER 3 Momentum Trading for the Private Investor 39 Alexander Molchanov and Philip A. Stork Abstract 39 Introduction 39 Data 40 Momentum Trading Results 41 Robustness Tests 45 Trading with a Volume Filter 47 Private Investor Trading 49 Conclusion 50 Acknowledgments 51 References 51 Notes 52 CHAPTER 4 Trading in Turbulent Markets: Does Momentum Work? 53 Tim A. Herberger and Daniel M. Kohlert Abstract 53 Introduction 53 Literature Review 54 Data and Methodology 55 Results 57 Conclusion 62 References 63 Notes 65 CHAPTER 5 The Financial Futures Momentum 67 Juan Ayora and Hipòlit Torró Abstract 67 Introduction 67 Literature Review 68 contents vii Data 69 Methodology and Results 69 Conclusion 77 Acknowledgments 79 References 79 Notes 80 CHAPTER 6 Order Placement Strategies in Different Market Structures: A Primer 83 Giovanni Petrella Abstract 83 Introduction 83 Costs and Benefits of Limit Order Trading 84 Trading in a Continuous Order-Driven Market 86 Trading in a Call Auction 89 Conclusion 91 References 92 PART II TECHNICAL TR ADING 95 CHAPTER 7 Profitability of Technical Trading Rules in an Emerging Market 97 Dimitris Kenourgios and Spyros Papathanasiou Abstract 97 Introduction 98 Methodology 100 Data and Empirical Results 103 Conclusion 108 References 109 Notes 111 CHAPTER 8 Testing Technical Trading Rules as Portfolio Selection Strategies 113 Vlad Pavlov and Stan Hurn Introduction 113 viii contents Data 115 Portfolio Formation 116 Bootstrap Experiment 122 Conclusion 124 Acknowledgments 126 References 126 Notes 127 CHAPTER 9 Do Technical Trading Rules Increase the Probability of Winning? Empirical Evidence from the Foreign Exchange Market 129 Alexandre Repkine Abstract 129 Introduction 130 Empirical Methodology 131 Empirical Results 135 Conclusion 139 References 140 CHAPTER 10 Technical Analysis in Turbulent Financial Markets: Does Nonlinearity Assist? 141 Mohamed El Hedi Arouri, Fredj Jawadi, and Duc Khuong Nguyen Abstract 141 Introduction 142 Nonlinear Modeling for Technical Analysis 143 Data and Empirical Results 147 Conclusion 150 References 150 Notes 153 CHAPTER 11 Profiting from the Dual-Moving Average Crossover with Exponential Smoothing 155 Camillo Lento Abstract 155 contents ix Introduction 156 Background on the Moving Averages 157 Methodology 159 Data 161 Trading with the Exponentially Smoothed DMACO 162 Conclusion 167 References 168 Notes 170 CHAPTER 12 Shareholder Demands and the Delaware Derivative Action 171 Edward Pekarek Abstract 171 Introduction 171 Policy Purposes for Derivative Actions 173 Demand Requirements 174 Standing to Sue Derivatively 178 Futility Excuses the Demand Requirement 179 Futility, Director Independence, and Business Judgment 180 Conclusion 181 Acknowledgments 182 References 183 PART III EXCHANGE-TR ADED FUND STR ATEGIES 187 CHAPTER 13 Leveraged Exchange-Traded Funds and Their Trading Strategies 189 Narat Charupat Abstract 189 Introduction 189 Trading Strategies 190 Conclusion 197 References 197 Notes 197 x contents CHAPTER 14 On the Impact of Exchange- Traded Funds over Noise Trading: Evidence from European Stock Exchanges 199 Vasileios Kallinterakis and Sarvinjit Kaur Abstract 199 Introduction 199 Data 201 Methodology 201 Descriptive Statistics 204 Results; Conclusion 204 References 211 Notes 211 CHAPTER 15 Penetrating Fixed-Income Exchange-Traded Funds 213 Gerasimos G. Rompotis Abstract 213 Introduction 213 Methodology 215 Data and Statistics 217 Empirical Results 220 Conclusion 229 References 231 CHAPTER 16 Smooth Transition Autoregressive Models for the Day-of-the-Week Effect: An Application to the S&P 500 Index 233 Eleftherios Giovanis Abstract 233 Introduction 233 Literature Review 234 Methodology 235 Data 238 Empirical Results 239 Conclusion 249 References 250 contents xi PART IV FOREIGN EXCHANGE MARKETS, ALGORITHMIC TRADING, AND RISK 253 CHAPTER 17 Disparity of USD Interbank Interest Rates in Hong Kong and Singapore: Is There Any Arbitrage Opportunity? 255 Michael C. S. Wong and Wilson F. Chan Abstract 255 Introduction 255 HIBOR and SIBOR 256 Data And Findings 257 Explanations for the HIBOR-SIBOR Disparity 259 Conclusion 260 References 261 CHAPTER 18 Forex Trading Opportunities Through Prices Under Climate Change 263 Jack Penm and R. D. Terrell Abstract 263 Introduction 263 Methodology 267 Data and Empirical