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Menampilkan postingan dari Juli, 2014

Applying Corrective AI to Daily Seasonal Forex Trading

  By Sergei Belov, Ernest Chan, Nahid Jetha, and Akshay Nautiyal     ABSTRACT We applied Corrective AI (Chan, 2022) to a trading model that takes advantage of the intraday seasonality of forex returns. Breedon and Ranaldo (2012)   observed that foreign currencies depreciate vs. the US dollar during their local working hours and appreciate during the local working hours of the US dollar. We first backtested the results of Breedon and Ranaldo on recent EURUSD data from September 2021 to January 2023 and then applied Corrective AI to this trading strategy to achieve a significant increase in performance. Breedon and Ranaldo (2012) described a trading strategy that shorted EURUSD during European working hours (3 AM ET to 9 AM ET, where ET denotes the local time in New York, accounting for daylight savings) and bought EURUSD during US working hours (11 AM ET to 3 PM ET). The rationale is that large-scale institutional buying of the US dollar takes place during European working hours to pa

Another "universal" capital allocation algorithm

Financial engineers are accustomed to borrowing techniques from scientists in other fields (e.g. genetic algorithms), but rarely does the borrowing go the other way. It is therefore surprising to hear about this paper on a possible mechanism for evolution due to natural selection which is inspired by universal capital allocation algorithms. A capital allocation algorithm attempts to optimize the allocation of capital to stocks in a portfolio. An allocation algorithm is called universal if it results in a net worth that is "similar" to that generated by the best constant-rebalanced portfolio with fixed weightings over time (denoted CBAL* below), chosen in hindsight. "Similar" here means that the net worth does not diverge exponentially. (For a precise definition, see this very readable  paper by Borodin, et al . H/t: Vladimir P.) Previously, I know only of one such universal trading algorithm - the Universal Portfolio invented by Thomas Cover, which I have describe