A framework for applied quantitative trading strategies in South African equity markets
Du Plessis, Jacques Francois
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This study discusses the history, origins and use of quantitative trading in the financial sector and it also lays the ground work for a framework of applied quantitative trading strategies in South African equity markets. This framework is then used on actual real world stock data from the Johannesburg Stock Exchange (JSE) to show if the discussed strategies are viable when applied in practise. It contains a brief literature study around quantitative trading and also gives details for the different trading strategies that can be commonly found in literature. It also contains research on the theoretical aspects of defining measures to see which strategies should be selected as well as a short discussion on guidelines for when positions should be exited. The study contains empirical research and back testing results around the profitability and feasibility of the various discussed trading strategies and discusses and analyses the suitability of each strategy in the context of a defined trading algorithm. The trading algorithm is used to find viable strategies over JSE stock price data from 2007/01/02 to 2011/12/30. The first four years are used to find and calibrate profitable trading strategies and then the last year is used to evaluate the results of the selected strategies as if they had been applied in the last year. The returns of each qualified strategy are also shown in the last chapter. This report contains references to tradable stocks which are listed on the JSE as well as descriptions of trading strategies which can be implemented on those stocks. The author does not accept any responsibility for any damages or loss as a result of implementing the trading strategies contained within this dissertation. The results in this dissertation are considered to be hypothetical results. Hypothetical performance results have many inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have been under or over compensated for. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Furthermore, only risk capital should be used for leveraged trading due to the high risk of loss involved. Trading any financial market involves risk. The content of this dissertation is neither a solicitation nor an offer to Buy/Sell any financial instruments. The content of this dissertation is for general information and educational purposes only. Although every attempt has been made to assure accuracy, the author does not give any express or implied warranty as to its accuracy. The author does not accept any liability for error or omission. Examples are provided for illustrative purposes only and should not be construed as investment advice or strategy.