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Evaluating the potential profitability of alpha trading
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
2019 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The purpose of this thesis is to test whether an active trading strategy using historical alpha values (a measure of risk-adjusted excess returns) for stocks can be used to achieve positive risk-adjusted profits. To do so, data on stocks in the Dow Jones Industrial Average and the Standard & Poor’s 500 Index from 1997 to 2018 are used to estimate the market model, using GARCH and TGARCH. Three kinds of portfolios are evaluated: portfolios to be held long, consisting of stocks with historical alpha values estimated to be larger than zero; portfolios to be held short, consisting of stocks with historical alpha values estimated to be less than zero; and self-financing portfolios, where stocks that have positive historical risk-adjusted returns are held long but stocks that have historical negative risk-adjusted returns are held short. The results of this study indicate that this trading strategy does not systematically “beat the market”.

Place, publisher, year, edition, pages
2019. , p. 50
National Category
Economics
Identifiers
URN: urn:nbn:se:uu:diva-377942OAI: oai:DiVA.org:uu-377942DiVA, id: diva2:1292435
Educational program
Master Programme in Economics
Supervisors
Examiners
Available from: 2019-02-28 Created: 2019-02-28 Last updated: 2019-02-28Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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  • de-DE
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  • en-US
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  • nn-NO
  • nn-NB
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  • Other locale
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Output format
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