The market refers to the S&P 500 index SPY, which is an important benchmark of US stock performance. The\nfollowing problem is of great interest: is there any trading system that can â??beatâ? the market consistently?\nProponents of the random walk hypothesis (RWH) and efficient market hypothesis (EMH) assert that stocks take an\nunpredictable path, and that it is impossible for a trader to outperform the overall market in the long run because\nstocks always trade at their fair values on stock exchanges. Therefore, the buy and hold (BH) investor has the best\nstrategy.\nThis paper showcases a website (GeometricWavelet.com) containing an explicit wavelet trading strategy (WT)\nthat â??beatsâ? the market consistently, contradicting the above assertion. The data set of SPY historical prices is used\nto show that WT â??beatsâ? the market. This data set is then fitted with a Geometric Brownian motion (GBM). Simulation\nshows that WT always outperforms the fitted GBM eventually and has larger risk adjusted returns. The numbers\ngenerated show that BHâ??s performance is far inferior to WTâ??s in the long run.
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