Pattern Explanation of Micro and Macro variables on Return of Stock Trading Strategies

Subject Areas : Financial Engineering

atefeh  yazdani varzi ¹ (Faculty of Humanities, Management, Islamic Azad University, Babol Branch, Iran)
Erfan  memarian ² (Faculty of Humanities, Islamic Azad University, Babol, Iran)
Seyed Ali  Nabavi Chashmi ³ (Department of Financial Management Babol Branch, Islamic Azad University, Babol)

Received: 2020-10-19 Accepted : 2021-01-25 Published : 2022-10-01

Keywords: Macro factors, Stock trading strategy, Micro factors,

Abstract :

In the research, pattern explanation of micro and macro variables on return on stock trading strategies has been dealt with. Based on data collected, existence of momentum and contrarian strategies in Tehran Stock Exchange market has been studied. To collect data and make statistical analysis, Excel Spread Sheet software, and statistical SPSS and R software packages have been used. Through usage made of various statistical models, the relationship between variable of return on stock and other variables added has been studied so that based on which stock trading strategy would be predicted, for the next 12 months. To do so, three statistical models of autoregressive time series (with no auxiliary variable), linear regression, and Markov-switching have been applied. Using the model’s fit criteria, these three models have been compared and best of them has been selected. Based on selected model, stock trading strategy for the next 12 months has been predicted. Markov model showed that within next 12 months, using contrarian strategy i.e. selling previous winners and purchasing previous losers can be profitable. According to the research findings, from among micro variables (base volume, trade volume, institutional investment, and free float) and from among macro variables (currency and inflation rates), only three variables of the first (base volume, institutional investment, and free float) are effective on stock trading strategy; and, they can be used as auxiliary variables to predict return on stock and to specify stock trading strategy in future as a result.

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