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Evaluating the performance of adapting trading strategies with different memory lengths

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  • Andreas Krause

Abstract

We propose a prediction model based on the minority game in which traders continuously evaluate a complete set of trading strategies with different memory lengths using the strategies' past performance. Based on the chosen trading strategy they determine their prediction of the movement for the following time period of a single asset. We find empirically using stocks from the S&P500 that our prediction model yields a high success rate of over 51.5% and produces higher returns than a buy-and-hold strategy. Even when taking into account trading costs we find that using the predictions will generate superior investment portfolios.

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  • Andreas Krause, 2009. "Evaluating the performance of adapting trading strategies with different memory lengths," Papers 0901.0447, arXiv.org.
    • Handle: RePEc:arx:papers:0901.0447
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    References listed on IDEAS

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    1. Challet, Damien & Marsili, Matteo & Zhang, Yi-Cheng, 2000. "Modeling market mechanism with minority game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 276(1), pages 284-315.
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    9. repec:bla:jfinan:v:55:y:2000:i:4:p:1705-1770 is not listed on IDEAS
    10. Challet, Damien & Marsili, Matteo & Zhang, Yi-Cheng, 2001. "Stylized facts of financial markets and market crashes in Minority Games," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 294(3), pages 514-524.
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    Cited by:

    1. Karol Wawrzyniak & Wojciech Wi'slicki, 2013. "Grand canonical minority game as a sign predictor," Papers 1309.3399, arXiv.org.

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