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Triangle Momentum

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posted on 11.01.2022, 22:12 by Steven Brasell

This research investigates the breakout of security prices from periods of sideways drift known as Triangles. Contributions are made to the existing literature by considering returns conditionally based on Triangles in particular terms of how momentum traders time positions, and by then using alternative statistical methods to more clearly show results. Returns are constructed by scanning for Triangle events, and determining simulated trader returns from predetermined price levels. These are compared with a Naive model consisting of randomly sampled events of comparable measure. Modelling of momentum results is achieved using a marked point Poisson process based approach, used to compare arrival times and profit/losses. These results are confirmed using a set of 10 day return heuristics using bootstrapping to define confidence intervals.  Using these methods applied to CRSP US equity data inclusive from years 1960 to 2017, US equities show a consistent but weak predictable return contribution after Triangle events occur; however, the effect has decreased over time, presumably as the market becomes more efficient. While these observed short term momentum changes in price have likely been compensated to a degree by risk, they do show that such patterns have contained forecastable information about US equities. This shows that prices have likely weakly been affected by past prices, but that currently the effect has reduced to the point that it is of negligible size as of 2017.

History

Copyright Date

01/01/2019

Date of Award

01/01/2020

Publisher

Te Herenga Waka—Victoria University of Wellington

Rights License

Author Retains Copyright

Degree Discipline

Stochastic Processes in Finance and Insurance

Degree Grantor

Te Herenga Waka—Victoria University of Wellington

Degree Level

Masters

Degree Name

Master of Science

ANZSRC Type Of Activity code

970101 Expanding Knowledge in the Mathematical Sciences

Victoria University of Wellington Item Type

Awarded Research Masters Thesis

Language

en_NZ

Victoria University of Wellington School

School of Mathematics and Statistics

Advisors

Surya, Budhi; Roberts, Leigh; Saglam, Yigit