Developing an expert system to create and rebalance investment portfolio, using technical analysis

Subject Areas : Journal of Investment Knowledge

Seyed Hojat Vakili ¹ , Amir Abbas Najafi ² , Seyed Babak Ebrahimi ³

1 - M.Sc. Student in Financial Engineering, Faculty of Industrial Engineering, K. N. Toosi University of Technology
2 - Associate Prof., Faculty of Industrial Engineering, K. N. Toosi University of Technology
3 - Assistant Prof., Faculty of Industrial Engineering, K. N. Toosi University of Technology.

Received: 2017-04-22 Accepted : 2017-09-18 Published : 2019-03-21

Keywords: Expert system, Genetic algorithm, portfolio, Technical Analysis,

Abstract :

Technical analysis is a methods to predict price movements which is used widely in financial markets. Theoretical and experimental result shows that investing on different assets as a portfolio cause to risk reduction. One of the deficiencies of technical analysis is lack of attention to make an appropriate diversification on assets. This paper is trying to design an automated trading system which can make an appropriate portfolio and rebalance it whenever needed. This system will be designed by the use of genetic algorithm, technical analysis basis and indicators. In order to assess the efficiency of this expert system twelve stocks were chosen from Tehran securities exchange market and the system has been run for the period of 330 days. Result shows that the return of the expert system is significantly larger than buy and hold strategy of equal weighted portfolio, variance and semi-variance portfolios of Markowitz model and risk free rate of return in Iran.    

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