An Empirical Analysis of MASSACHUSETTS NS

OF TECHNOLOGY E
Quantitative Trading Strategies JUN 252008
by
Masaharu Aiuchi LIBRARIES
B.S., Physics, The University of Tokyo (1990)
M.S., Physics, The University of Tokyo (1992) AII4H
Ph.D., Artificial Intelligence, The University of Tokyo (2005)
Submitted to the MIT Sloan School of Management
in partial fulfillment of the requirements for the degree of
Master of Business Administration
at the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
June 2008
@ 2008 Masaharu Aiuchi. All rights reserved.
The author hereby grants to MIT permission to reproduce and
distribute publicly paper and electronic copies of this thesis document
in whole or in part.

Author ......................... .................................

MIT Sloan School of Management
May 9, 2008
Certified by...... .. .. .... .. .. .... . ..... . ..... . .... .. .. ... ...

Andrew W. Lo
Harris & Harris Group Professor, MIT Sloan School of Management
Director, I Laboratory for Financial Engineering
Thesis Supervisor
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Stephen J. Sacca
Director,
MIT Sloan Fellows Program in Innovation and Global Leadership,
MIT Sloan School of Management
 An Empirical Analysis of
Quantitative Trading Strategies
by
Masaharu Aiuchi

Submitted to the MIT Sloan School of Management

on May 9, 2008, in partial fulfillment of the
requirements for the degree of
Master of Business Administration

Abstract
Along with the increasing computing power, growing availability of various data
streams, introduction of the electronic exchanges, decreasing trading costs and heating-
up competition in financial investment industry, quantitative trading strategies or
quantitative trading rules have been evolving rapidly in a few decades.
They challenge the Efficient Market Hypothesis by trying to forecast future price
movements of risky assets from the historical market information in algorithmic ways
or in statistical ways. They try to find some patters or trends from the historical data
and use them to beat the market benchmark.
In this research, I introduce several quantitative trading strategies and investigate
their performances empirically i.e. by executing back-tests assuming that the S&P
500 stock index is a risky asset to trade. The strategies utilize the historical data of
the stock index itself, trading volume movement, risk-free rate movement and implied
volatility movement in order to generate buy or sell trading signals.
Then I attempt to articulate and decompose the source for successes of some
strategies in the back-tests into several factors such as trend patterns or relationships
between market information variables in intuitive way.
Some strategies recorded higher performances than the benchmark in the back-
tests, however it is still a problem how we can distinguish these winner strategies
beforehand from the losers at the beginning of our investment horizon. Human dis-
cretion such as macro view on the future market trend is considered to still play an
important role for quantitative trading to be successful in the long-run.

Thesis Supervisor: Andrew W. Lo

Title: Harris & Harris Group Professor, MIT Sloan School of Management
Director, MIT Laboratory for Financial Engineering
Acknowledgments
I would like to thank all of the individuals who supported and encouraged me to
challenge this endeavor. I would like to thank my advisor, Professor Andrew W.
Lo who provided me insightful comments as well as strong encouragement. Without
his support, I couldn't have accomplished this research. His pioneering studies on
financial markets inspired me a lot to push my limits.
I also would like to acknowledge the following MIT Sloan School of Manage-
ment, Boston University Department of Economics, Harvard University Department
of Statistics and Harvard Business School professors, Mark P. Kritzman, Alex Stom-
per, Jonathan Treussard, Yoonjun Lee and Robert C. Merton for their thought-
provoking comments and discussions on financial markets in their classes and through
personal interactions.
I would like to thank Geert Vermeulen and Tom Ouyang, my team members of
the financial engineering project sponsored by Goldman Sachs Asset Management. I
learned lots of things from the collaboration with them and that helped me pursuit
my research later.
I would like to thank my colleagues, Marc Gabelli, Peter Curley and Shuichi
Yokoyama for providing me opportunities to understand the practices in financial
investment industry. Conversations with them helped me direct my research to have
as much practical implications as possible.
Finally, I would like to thank the MIT Sloan Fellows Program in Innovation and
Global Leadership which provided me a great research environment, rich resources
and a terrific community to accomplish this study.
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Contents

1 Introduction 31
1.1 Motivation ................... ........... .. 31

1.2 Overview ..... ........... ................ 32

2 Literature Review 35
2.1 Studies on Market Efficiency . . . . . . . . . . .. .. . . . . . . 35

2.2 Studies on Quantitative Trading Strategies . .............. 37

3 Quantitative Trading Strategies 39

3.1 Strategy for a Single Risky Asset . .................. . 40

3.1.1 Trading Signal ... .. . . .... .... . ..... . . . .. 41

3.1.2 Trading Policy...... . . . . .. . .... .... .. . . . 42

3.1.3 Trading Strategy ...... . .. ... . .... .. .... . . . . 42

3.2 Strategies Based on Time Proximity .......... ....... . . . 43

3.2.1 Contrarian and Momentum ... . . .. . . ... .... ..... 43

3.2.2 Contrarian and Momentum on an Arbitrary Market Informa-

tion Variable . . . .. . . . . ......
. . . ..... . . .. . . . 45

3.2.3 Moving Average Convergence Divergence . . ... . . . ... . 46

3.2.4 Trend-Based Regression . ..... .. . .... . . ... . 47

3.2.5 Trend-Based Regression with Multiple Market Information Vari-
ables . .................. .. ......... .. 49
3.2.6 Conditional Probability Table . . . ... . . . . 50
3.3 Strategies Based on Pattern Proximity . . . . . . . . 52
 3.3.1 Nearest Neighbors Algorithm ........ ... ....... 52
3.3.2 Nearest Neighbors Algorithm with Multiple Market Informa-
tion Variables ......... .. . . ........ 55
3.4 Meta-Level Strategies ...... . ... ....... .......... 57
3.4.1 Best Performer Selection ... ....... . .. ... .. . . 58
3.4.2 Voting ..... ....................... 58

4 Evaluation of Strategies 59
4.1 Property of a Trading Signal . ....... ... .. .... ... . 60
4.2 Upper Boundary for Rate of Return . .................. 60
4.3 Statistical Significance of Rate of Return (Lower Boundary) .... . 61
4.4 Performance Measures of a Trading Strategy . ........... . 62

5 Empirical Analysis 65
5.1 Back-Testing .... ..... ......... ......... . 65
5.2 Examination of Historical Data .......... ....... .... 67
5.2.1 Basic Properties of Market Information Historical Data . . .. 67
5.2.2 Correlation Analysis between Market Information Variables 70
5.3 Performance Analysis of Strategies . .............. . 73
5.3.1 Benchmarks .......... ..... ......... 73
5.3.2 Contrarian and Momentum ............ ... .... 78
5.3.3 Contrarian and Momentum on an Arbitrary Market Informa-
tion Variable ... .... ... ........ .......... 79
5.3.4 Moving Average Convergence Divergence . ........ . . . 83
5.3.5 Trend-Based Regression . ...... ........... .. . 86
5.3.6 Trend-Based Regression with Multiple Market Information Vari-
ables ....... . ............... 90
5.3.7 Conditional Probability Table . ....... .... ...... 100
5.3.8 Nearest Neighbors Algorithm . ......... .... . . . . 103
5.3.9 Nearest Neighbors Algorithm with Multiple Market Informa-
tion Variables ................. ........ 106
 5.3.10 Best Performer Selection in Combination with Individual Strate-
gies...... .. ........................ 112
5.3.11 Voting in Combination with Individual Strategies . . . . . . 114
5.4 Summary of Empirical Analysis ................... .. 116

6 Conclusion 121

A Detailed Correlation Analysis between Market Information Vari-

ables 123
A.1 Auto-Correlation Analysis of the S&P 500 Stock Index Returns . . . 123
A.2 Correlation Analysis between the S&P 500 Stock Index Returns and
its Trading Volumes . . . . . . . . 134
A.3 Correlation Analysis between the S&P 500 Stock Index Returns and
the Change of its Trading Volumes . .... .............. 145
A.4 Correlation Analysis between the S&P 500 Stock Index Returns and
the 13-Week Treasury Bill Rates ...................... 156
A.5 Correlation Analysis between the S&P 500 Stock Index Returns and
the Change of the 13-Week Treasury Bill Rates . . .. ......... 167
A.6 Correlation Analysis between the S&P 500 Stock Index Returns and
the CBOE Volatility Index . ....................... 178
A.7 Correlation Analysis between the S&P 500 Stock Index Returns and
the Change of the CBOE Volatility Index .. . . . . . . . . . .. 188

B Detailed Performances of Strategy Back-Tests 199

B.1 Performances of Individual Strategies . . . . . . . . . . .. 199
B.2 Performances of Voting Strategy in Combination with Individual Strate-
gies . . . . . . . . . . ................ . . . . . . .... 231
B.3 Performances of Best Performer Selection Strategy in Combination
with Individual Strategies . ....................... 256
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List of Figures

5-1 Historical Changes of the Market Information Variables .. . . . . . 68

5-2 An Example of the Correlation Analysis ........ ........ 70
5-3 Performance Changes of Buy-and-Hold
and the Credit Suisse/Tremont Hedge Fund Index . . ... . . . ...... 74
5-4 Average Annualized Rate of Return Distributions of Randomly Gen-
erated Signals (1998-2007) . . . ... . .. . 77
5-5 Average pi, Distributions of Randomly Generated Signals (1998-2007) 77
5-6 Annualized Returns of Contraria.n and Momentum Strategies (1998-2007) 78
5-7 Performance Change of the Best Contrarian and Momentum Strategy:
Contrarian(weekly) ....... ........... .......... 79

5-8 Annualized Returns of Contrarian and Momentum Strategies

on Change of Trading Volume (1998-2007) .. . . . .. . . .. . 80
5-9 Annualized Returns of Contrarian and Momentum Strategies
on Change of Risk-free Rate (1998-2007) . ... . ... ... . . . 80
5-10 Annualized Returns of Contrarian and Momentum Strategies
on Change of Volatility Index (1998-2007) .... ...... . . . . 81
5-11 Performance Changes of the Best Contrarian and Momentum Strate-
gies by Market Information Variable: Contrarian(Chg.of Trad. Vol.,
weekly) , Momentum(Chg.of Rf Rate, daily) and Momentum(Chg.of
VIX, weekly) ......... ................ ... . 82

5-12 Annualized Returns of Top 20 Moving Average Convergence Diver-

gence Strategies (1998-2007) . .. ............. . . . .. .. 83
5-13 Average Annualized Returns by Parameters of Moving Average Con-
vergence Divergence Strategies (1998-2007) .... .... ....... 84

5-14 Average Annualized Return Distribution (left) and Average pin Dis-
tribution (right) of the 1210 Moving Average Convergence Divergence
Strategies (1998-2007) . ............ ... ...... . 84

5-15 Performance Change of the Best Moving Average Convergence Diver-

gence Strategy: MACD(25, 280, 0.02) ...... ... .... ... 86

5-16 Annualized Returns of Top 20 Trend-Based Regression Strategies (1998-

2007) ............................ ........ 87

5-17 Average Annualized Returns by Parameters of Trend-Based Regression

Strategies (1998-2007) ................ ......... 87

5-18 Average Annualized Return Distribution (left) and Average pin Distri-
butions (right) of the 990 Trend-Based Regression Strategies (1998-2007) 88

5-19 Performance Change of the Best Trend-Based Regression Strategy:

Trend-based Regression(8, 100, 0.5) . .................. 89

5-20 Annualized Returns of Top 20 Trend-Based Regression Strategies with

Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1) (1998-2007) . 91

5-21 Average Annualized Returns by Parameters of Trend-Based Regression

Strategies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1)
(1998-2007) ..... .................. ........ 91

5-22 Average Annualized Return Distribution (left) and Average pin Dis-
tributions (right) of the 990 Trend-Based Regression Strategies with
Index Return and Chg. of Trad. Vol. (W 1 : W2 = 1 : 1) (1998-2007) . 93

5-23 Annualized Returns of Top 20 Trend-Based Regression Strategies with

Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1) (1998-2007) . 94

5-24 Average Annualized Returns by Parameters of Trend-Based Regression

Strategies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1)
(1998-2007) ............... ............. 94
5-25 Average Annualized Return Distribution (left) and Average pin Dis-
tributions (right) of the 770 Trend-Based Regression Strategies with
Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1) (1998-2007) . 95

5-26 Performance Changes of the Best Trend-Based Regression Strategy

with Index Return and Chg. of Trad. Vol.: Trend-based Regress(Index
Return, 8; Chg of Trad. Vol., 8; 20, 0.5) for (W1 : W2 = 1 : 1) and
Trend-based Regress(Index Return, 4; Chg of Trad. Vol., 2; 80, 0.4) for
(Wi:W 2 =2:1) ...... .................... 96

5-27 Annualized Returns of Top 20 Trend-Based Regression Strategies with

Multiple Market Information Variables (1998-2007) . . . . . . . . . 97

5-28 Average Annualized Returns by Parameters of Trend-Based Regression

Strategy with Multiple Market Information Variables (1998-2007) . . 98

5-29 Performance Change of the Best Trend-Based Regression Strategy with

Multiple Market Information Variables: TBR(Index Return, 1; Chg of
Trad. Vol., 1; Chg of VIX, 1; 104 weeks, 0) . .. ...... . . .... 99

5-30 Annualized Returns of Top 20 Conditional Probability Table Strategies

(1998-2007) .. . . . . ................... . .... 100

5-31 Average Annualized Returns by Parameters of Conditional Probability

Table Strategies (1998-2007)... . . . .... .... . . . . . . . . 101

5-32 Performance Change of the Best Conditional Probability Table Strate-

gies: CPT(Index Return, Chg.of VIX; 78 weeks, 0) . .. . . . . . . 102

5-33 Annualized Returns of Top 20 Nearest Neighbors Algorithm Strategies

(1998-2007) ... . ....................... ..... 103

5-34 Average Annualized Returns by Parameters of Nearest Neighbors Al-

gorithm Strategies (1998-2007) . ... . . . . . .. . . .... .. .. . 104

5-35 Average Annualized Return Distribution (left) and Average pi, Distri-
butions (right) of the 1452 Nearest Neighbors Strategies (1998-2007) . 105
5-36 Performance Change of the Best Nearest Neighbors Strategies: NN(14,
50, 0, regression) . ................. . ........ 105
5-37 Annualized Returns of Top 20 Nearest Neighbors Strategies with Index
Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1) (1998-2007) ..... 106
5-38 Average Annualized Returns by Parameters of Nearest Neighbors Strate-
gies with Index Return and Chg. of Trad. Vol. (W 1 : W2 = 1 : 1)
(1998-2007) ...... ................... ...... 107

5-39 Average Annualized Return Distribution (left) and Average pi, Dis-
tributions (right) of the 1452 Nearest Neighbors Strategies with Index
Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1) (1998-2007) ..... 108
5-40 Annualized Returns of Top 20 Nearest Neighbors Strategies with Index
Return and Chg. of Trad. Vol. (W1 : W2 = 2: 1) (1998-2007) ..... 109
5-41 Average Annualized Returns by Parameters of Nearest Neighbors Strate-
gies with Index Return and Chg. of Trad. Vol. (W 1 : W2 = 2 : 1)
(1998-2007) ............... ................. 109
5-42 Average Annualized Return Distribution (left) and Average pi" Dis-
tributions (right) of the 1694 Nearest Neighbors Strategies with Index
Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1) (1998-2007) ..... 111
5-43 Performance Change of the Best Nearest Neighbors Strategies with
Index Return and Chg. of Trad. Vol.: NN(Index Return, 3; Chg of
Trad. Vol., 3; 400, 1, regression) for (W i : W2 = 1 : 1) and NN(Index
Return, 16; Chg of Tr'ad.Vol., 8; 150, 0.1, regression) for (Wi : W2 =
2: 1) .............. ............ ....... 111
5-44 Performance Change of Best Performer Selection Strategy in Combi-
nation with Eight Strategy Classes (1998-2007) ......... . . . . 113
5-45 Annualized Returns of Voting among Eight Strategy Classes by Pa-
rameters (1998-2007) ................... ........ 114
5-46 Performance Change of the Best Voting Strategy in Combination with
Eight Strategy Classes: Voting(50, yearly) . ............ . 115
5-47 Annualized Return-Annualized Volatility Plot of the Best Strategies
by Strategy Classes Examined in the Study (1998-2007) ........ 117
5-48 Annualized Return-Average pin Plot of the Best Strategies by Strategy
Classes Examined in the Study (1998-2007) . . . . . . ... . . . 118

5-49 Enlarged Annualized Return-Average pi, Plot of the Best Strategies

by Strategy Classes Examined in the Study (1998-2007) . . . . . . . 119

A-1 Change of Index Return Auto-Correlation

(Period = Daily, Time Window = 1 year) . . ... . ..... ... . 124

A-2 Change of Index Return Auto-Correlation

(Period = Daily, Time Window = 3 years) ... .... . ... .. ... 125

A-3 Change of Index Return Auto-Correlation

(Period = Weekly, Time Window = 1 year) . . . . .. . . .. . . . 126

A-4 Change of Index Return Auto-Correlation

(Period = Weekly, Time Window = 3 years) . . . .. . . ... .. . 127

A-5 Change of Index Return Auto-Correlation

(Period = Monthly, Time Window = 1 year) ... ...... . . . .. 128

A-6 Change of Index Return Auto-Correlation

(Period = Monthly, Time Window = 3 years) . .... .. . ...... 129

A-7 Change of Index Return Auto-Correlation

(Period = Quarterly, Time Window = 3 years) .. ... . .... ..... 130

A-8 Change of Index Return Auto-Correlation

(Period = Quarterly, Time Window = 5 years) . .. . . .. . . .... . 131

A-9 Change of Index Return Auto-Correlation

(Period = Yearly, Time Window = 5 years) . .... . .. . . ...... 132

A-10 Change of Index Return Auto-Correlation

(Period = Yearly, Time Window = 10 years) . . . .. .... . . ... 133

A-11 Change of Correlation with Trading Volume

(Period = Daily, Time Window = 1 year). . . . ...
. . . . .. . 135
A-12 Change of Correlation with Trading Volume
(Period = Daily, Time Window = 3 years). . . ... . . . .... . 136
A-13 Change of Correlation with Trading Volume
(Period = Weekly, Time Window = 1 year) . ............. 137
A-14 Change of Correlation with Trading Volume
(Period = Weekly, Time Window = 3 years) . ............. 138
A-15 Change of Correlation with Trading Volume
(Period = Monthly, Time Window = 1 year) . ............. 139
A-16 Change of Correlation with Trading Volume
(Period = Monthly, Time Window = 3 years) ...... ... ... . 140
A-17 Change of Correlation with Trading Volume
(Period = Quarterly, Time Window = 3 years) . ........ ... . 141
A-18 Change of Correlation with Trading Volume
(Period = Quarterly, Time Window = 5 years) ......... . . . . 142
A-19 Change of Correlation with Trading Volume
(Period = Yearly, Time Window = 5 years) .......... .... 143
A-20 Change of Correlation with Trading Volume
(Period = Yearly, Time Window = 10 years) . ........ . . . 144
A-21 Change of Correlation with Change of Trading Volume
(Period = Daily, Time Window = 1 year) ....... .... .... 146
A-22 Change of Correlation with Change of Trading Volume
(Period = Daily, Time Window = 3 years) ... ... . .. . ... . . . 147
A-23 Change of Correlation with Change of Trading Volume
(Period = Weekly, Time Window = 1 year) ..... .... ..... . 148
A-24 Change of Correlation with Change of Trading Volume
(Period = Weekly, Time Window = 3 years) . ......... . . . .. 149
A-25 Change of Correlation with Change of Trading Volume
(Period = Monthly, Time Window = 1 year) . ............. 150
A-26 Change of Correlation with Change of Trading Volume
(Period = Monthly, Time Window = 3 years) ...... .... ... 151
A-27 Change of Correlation with Change of Trading Volume
(Period = Quarterly, Time Window = 3 years) . ............ 152
A-28 Change of Correlation with Change of Trading Volume
(Period = Quarterly, Time Window = 5 years) . . .. . . .. . .... . 153
A-29 Change of Correlation with Change of Trading Volume
(Period = Yearly, Time Window = 5 years) . . . ... . ... .. . .. 154
A-30 Change of Correlation with Change of Trading Volume
(Period = Yearly, Time Window = 10 years) . .. . . .. . . ..155
A-31 Change of Correlation with Risk-free Rate
(Period = Daily, Time Window = 1 year) .. . . .... . . . . . . . 157
A-32 Change of Correlation with Risk-free Rate
(Period = Daily, Time Window = 3 years) . . . . .... . .. . . .158
A-33 Change of Correlation with Risk-free Rate
(Period = Weekly, Time Window = 1 year) . ..... . . . . . .. 159
A-34 Change of Correlation with Risk-free Rate
(Period = Weekly, Time Window = 3 years) . . . .... . .. . . ..160
A-35 Change of Correlation with Risk-free Rate
(Period = Monthly, Time Window = 1 year) . . . ... . .... .. . 161
A-36 Change of Correlation with Risk-free Rate
(Period = Monthly, Time Window = 3 years) . .... . .. . ..... . 162
A-37 Change of Correlation with Risk-free Rate
(Period = Quarterly, Time Window = 3 years) . . . . . ......... 163
A-38 Change of Correlation with Risk-free Rate
(Period = Quarterly, Time Window = 5 years) . . . . . . .. . .. . 164
A-39 Change of Correlation with Risk-free Rate
(Period = Yearly, Time Window = 5 years) . . . . .... ... ... 165
A-40 Change of Correlation with Risk-free Rate
(Period = Yearly, Time Window = 10 years) . .. . ... . ... .. ... 166
A-41 Change of Correlation with Change of Risk-free Rate
(Period = Daily, Time Window = 1 year) . . . ........ . ... 168
A-42 Change of Correlation with Change of Risk-free Rate
(Period = Daily, Time Window = 3 years) . . . . .... . . ... .... 169
A-43 Change of Correlation with Change of Risk-free Rate
(Period = Weekly, Time Window = 1 year) . . . . . 170
A-44 Change of Correlation with Change of Risk-free Rate
(Period = Weekly, Time Window = 3 years) . . . . . 171
A-45 Change of Correlation with Change of Risk-free Rate
(Period = Monthly, Time Window = 1 year) . . . . . 172
A-46 Change of Correlation with Change of Risk-free Rate
(Period = Monthly, Time Window = 3 years) . . . . 173
A-47 Change of Correlation with Change of Risk-free Rate
(Period = Quarterly, Time Window = 3 years) . . . . 174
A-48 Change of Correlation with Change of Risk-free Rate
(Period = Quarterly, Time Window = 5 years) . . . . 175
A-49 Change of Correlation with Change of Risk-free Rate
(Period = Yearly, Time Window = 5 years) . . . . . 176
A-50 Change of Correlation with Change of Risk-free Rate
(Period = Yearly, Time Window = 10 years) . . . . . . . . . . . 177
A-51 Change of Correlation with Volatility Index
(Period = Daily, Time Window = 1 year) . . . . . . . . . . . . 179
A-52 Change of Correlation with Volatility Index
(Period = Daily, Time Window = 3 years) . . . . . . . . . . . . 180
A-53 Change of Correlation with Volatility Index
(Period = Weekly, Time Window = 1 year) . . . . . . . . . . . 181
A-54 Change of Correlation with Volatility Index
(Period = Weekly, Time Window = 3 years) . . . . . . . . . . 182
A-55 Change of Correlation with Volatility Index
(Period = Monthly, Time Window = 1 year) . . . . . . . . .. . 183
A-56 Change of Correlation with Volatility Index
(Period = Monthly, Time Window = 3 years) . . . . . . . . . . . 184
A-57 Change of Correlation with Volatility Index
(Period = Quarterly, Time Window = 3 years) . . . . 185
A-58 Change of Correlation with Volatility Index
(Period = Quarterly, Time Window = 5 years) . . . . . . . . 186
A-59 Change of Correlation with Volatility Index
(Period = Yearly, Time Window = 5 years) . . . . . . . . 187
A-60 Change of Correlation with Change of Volatility Index
(Period = Daily, Time Window = 1 year) . . . . 189
A-61 Change of Correlation with Change of Volatility Index
(Period = Daily, Time Window = 3 years) . . . . . .. 190
A-62 Change of Correlation with Change of Volatility Index
(Period = Weekly, Time Window = 1 year) . . . . . . . 191
A-63 Change of Correlation with Change of Volatility Index
(Period = Weekly, Time Window = 3 years) . . . . . . 192
A-64 Change of Correlation with Change of Volatility Index
(Period = Monthly, Time Window = 1 year) . . . . . . 193
A-65 Change of Correlation with Change of Volatility Index
(Period = Monthly, Time Window = 3 years) . . . . . . . . . 194
A-66 Change of Correlation with Change of Volatility Index
(Period = Quarterly, Time Window = 3 years) . . . . . S. . . 195
A-67 Change of Correlation with Change of Volatility Index
(Period = Quarterly, Time Window = 5 years) . . . . . 196
A-68 Change of Correlation with Change of Volatility Index
(Period = Yearly, Time Window = 5 years) . . . . . . . . . . 197
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List of Tables

5.1 Statistical Properties of the Market Information Variables ... . .. 69

5.2 Summary of Correlation Analysis between Market Information Variables 72

5.3 Performance Summary of Buy-and-Hold Strategy . .......... 73

5.4 Performance Summary of Credit Suisse/Tremont Hedge Fund Indexes 75

5.5 Performance Summary of Randomly Generated Trading Signals (1998-

2007) .................................. . 76

5.6 Performance Summary of the Best Contrarian and Momentum Strat-

egy: Contrarian(weekly) ................... ...... 79

5.7 Performance Summary of the Best Contrarian and Momentum Strate-

gies by Market Information Variable: Contrarian(Chg.of Trad. Vol.,
weekly) , Momentum(Chg.of Rf Rate, daily) and Momentum(Chg.of
VIX, weekly) . . ...................... ....... 82

5.8 Average Annualized Returns in Neighborhood of the Best Moving Av-

erage Convergence Divergence Strategy: MACD(25, 280, 0.02) . . . . 85

5.9 Performance Summary of the Best Moving Average Convergence Di-

vergence Strategy: MACD(25, 280, 0.02) . . . . . ....... .... 86

5.10 Average Annualized Returns in Neighborhood of the Best Trend-Based

Regression Strategy: Trend-based Regression(8, 100, 0.5) . ..... . 88

5.11 Performance Summary of the Best Trend-Based Regression Strategy:

Trend-based Regression(8, 100, 0.5) . . . . . . ............
. .. 89

21
5.12 Average Annualized Returns in Neighborhood of the Best Trend-Based
Regression Strategy with Index Return and Chg. of Trad. Vol. (W 1 :
W2 = 1 : 1): Trend-based Regress(Index Return, 8; Chg of Trad. Vol.,
8; 20, 0.5) ............... .. .... .......... 92
5.13 Average Annualized Returns in Neighborhood of the Best Trend-Based
Regression Strategy with Index Return and Chg. of Trad. Vol. (W1 :
W2 = 2 : 1): Trend-based Regress(Index Return, 4; Chg of Trad. Vol.,
2; 80, 0.4) .......... ...................... 95
5.14 Performance Summary of the Best Trend-Based Regression Strategy
with Index Return and Chg. of Trad. Vol.: Trend-based Regress(Index
Return, 8; Chg of Trad. Vol., 8; 20, 0.5) for (W1 : W2 = 1 : 1) and
Trend-based Regress(Index Return, 4; Chg of Trad. Vol., 2; 80, 0.4) for
(W1 :W2 =2:1) ................... .. ......... 96
5.15 Use of Market Information Variables in Top 20 Trend-Based Regression
Strategies with Multiple Market Information Variables (1998-2007) 98
5.16 Performance Summary of the Best Trend-Based Regression Strategy
with Multiple Market Information Variables: TBR(Index Return, 1;
Chg of Trad. Vol., 1; Chg of VIX, 1; 104 weeks, 0) .......... . 99
5.17 Use of Market Information Variables in Top 20 Conditional Probability
Table Strategies (1998-2007) ........ .............. 101
5.18 Performance Summary of the Best Conditional Probability Table Strate-
gies: CPT(Index Return, Chg.of VIX; 78 weeks, 0) . ......... 102
5.19 Average Annualized Returns in Neighborhood of the Best Nearest
Neighbors Strategies: NN(14, 50, 0, regression) . ........... 104
5.20 Performance Summary of the Best Nearest Neighbors Strategies: NN(14,
50, 0, regression) . .................. ........ 105
5.21 Average Annualized Returns in Neighborhood of the Best Nearest
Neighbors Strategies with Index Return and Chg. of Trad. Vol.
(W1 : W2 = 1 : 1): NN(Index Return, 3; Chg of Trad. Vol., 3; 400, 1,
regression) ...... ......... .............. 108
5.22 Average Annualized Returns in Neighborhood of the Best Nearest
Neighbors Strategies with Index Return and Chg. of Trad. Vol.
(W1 :W 2 = 2 :1): NN(Index Return, 16; Chg of Trad. Vol., 8; 150,
0.1, regression) ................... ......... . 110
5.23 Performance Summary of the Best Nearest Neighbors Strategies with
Index Return and Chg. of Trad. Vol.: NN(Index Return, 3; Chg of
Trad. Vol., 3; 400, 1, regression) for (W1 : W2 = 1 : 1) and NN(Index
Return, 16; Chg of Trad. Vol., 8; 150, 0.1, regression) for (W1 : W2 =
2: 1) ... . . . ................... ........... 111
5.24 Ranking Transition of Top 10 Strategies in Five Subsequent Periods . 113
5.25 Performance Summary of Best Performer Selection Strategy in Com-
bination with Eight Strategy Classes (1998-2007) . . ...... ... 113
5.26 Performance Summary of the Best Voting Strategy in Combination
with Eight Strategy Classes: Voting(50, yearly) .. . .. .. . . . .. 115
5.27 Performance Summary of the Best Strategies by Strategy Classes Ex-
amined in the Study . . .. . . . . .. . ... . ... . . .... . . . . 116
5.28 Correlation Relationships among the Best Strategies by Strategy Classes
Examined in the Study . . .. .... . ........ . . .... . 120

B.1 Performance Summary of Contrarian and Momentum Strategies . . . 200

B.2 Performance Summary of Top 20 Contrarian and Momentum Strate-

gies on an Arbitrary Market Information Variable (Annualized Returns
and Annualized Volatilities) . . .... . .. . . . . . 201
B.3 Performance Summary of Top 20 Contrarian and Momentum Strate-
gies on an Arbitrary Market Information Variable (Sharpe Ratios and
Proportions of In-the-Market)... . .. . ... . . . . . .... ... 202
B.4 Performance Summary of Top 20 Contrarian and Momentum Strate-
gies on an Arbitrary Market Information Variable (Numbers of Trading)203
B.5 Performance Summary of Top 20 Moving Average Convergence and
Divergence Strategies (Annualized Returns and Annualized Volatilities) 204
B.6 Performance Summary of Top 20 Moving Average Convergence and
Divergence Strategies (Sharpe Ratios and Proportions of In-the-Market) 205

B.7 Performance Summary of Top 20 Moving Average Convergence and

Divergence Strategies (Numbers of Trading) . ........... . 206

B.8 Performance Summary of Top 20 Trend-Based Regression Strategies

(Annualized Returns and Annualized Volatilities) .......... . 207

B.9 Performance Summary of Top 20 Trend-Based Regression Strategies

(Sharpe Ratios and Proportions of In-the-Market) .......... . 208

B.10 Performance Summary of Top 20 Trend-Based Regression Strategies

(Numbers of Trading) ....... . . ............ 209

B.11 Performance Summary of Top 20 Trend-Based Regression Strategies

with Index Return and Chg. of Trad. Vol. (Wi : W2 = 1 : 1)
(Annualized Returns and Annualized Volatilities) . ........ . 210

B.12 Performance Summary of Top 20 Trend-Based Regression Strategies

with Trad. Vol.(W:V= 1:1) (Sharpe Ratios and Proportions of In-the-
Market) ........................ . ........ 211

B.13 Performance Summary of Top 20 Trend-Based Regression Strategies

with Index Return and Chg. of Trad. Vol. (W 1 : W2 = 1 : 1)
(Numbers of Trading) ....... ................... . 212

B.14 Performance Summary of Top 20 Trend-Based Regression Strategies

with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1)
(Annualized Returns and Annualized Volatilities) .... .... ... 213

B.15 Performance Summary of Top 20 Trend-Based Regression Strategies

with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1) (Sharpe
Ratios and Proportions of In-the-Market) . ............... 214

B.16 Performance Summary of Top 20 Trend-Based Regression Strategies

with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1)
(Numbers of Trading) ................... ........ 215

24
B.17 Performance Summary of Top 20 Trend-Based Regression Strategies
with Multiple Market Information Variables (Wi = 1) (Annualized
Returns and Annualized Volatilities) . . . .. . . . . . . 216
B.18 Performance Summary of Top 20 Trend-Based Regression Strategies
with Multiple Market Information Variables (Wi = 1) (Sharpe Ratios
and Proportions of In-the-Market) . ......... . .... . . ... 217
B.19 Performance Summary of Top 20 Trend-Based Regression Strategies
with Multiple Market Information Variables (Wi = 1) (Numbers of
Trading) ........ ....... ................ 218
B.20 Performance Summary of Top 20 Conditional Probability Table Strate-
gies (Annualized Returns and Annualized Volatilities) . . . . .. . . . 219
B.21 Performance Summary of Top 20 Conditional Probability Table Strate-
gies (Sharpe Ratios and Proportions of In-the-Market) . . . . . . . 220
B.22 Performance Summary of Top 20 Conditional Probability Table Strate-
gies (Numbers of Trading) . . . .. . .. . . . . .. . . ... ... . 221
B.23 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-
gies (Annualized Returns and Annualized Volatilities) . .. .... . . 222
B.24 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-
gies (Sharpe Ratios and Proportions of In-the-Market) .. . . . . . 223
B.25 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-
gies (Numbers of Trading) . . . ........ . ... . . . .... . 224
B.26 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-
gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1)
(Annualized Returns and Annualized Volatilities) ...... .... . 225
B.27 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-
gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1)
(Sharpe Ratios and Proportions of In-the-Market) .. . ... . . . .. 226
B.28 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-
gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1)
(Numbers of Trading). . . .. .. . .. . .. ... . .... . . . . . 227
B.29 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-
gies with Index Return and Chg. of Trad. Vol. (W1 : W• = 2 : 1)
(Annualized Returns and Annualized Volatilities)... . . . . . .. 228

B.30 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-

gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1)
(Sharpe Ratios and Proportions of In-the-Market) . .. . ... . .... 229

B.31 Performance Summary of Top 20 Nearest Neighbors Algorithm Strate-

gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1)
(Numbers of Trading) . . . ... . . ..... ...... 230

B.32 Performance Summary of Voting among Moving Average Convergence

and Divergence Strategies (Annualized Returns and Annualized Volatil-
ities) . . . .. ................... ......... 232

B.33 Performance Summary of Voting among Moving Average Convergence

and Divergence Strategies (Sharpe Ratios and Proportions of In-the-
Market) ... ................... .......... . 233

B.34 Performance Summary of Voting among Moving Average Convergence

and Divergence Strategies (Numbers of Trading) . ... . ... . ... 234

B.35 Performance Summary of Voting among Trend-Based Regression Strate-

gies (Annualized Returns and Annualized Volatilities) . . . . . . .. . 235

B.36 Performance Summary of Voting among Trend-Based Regression Strate-

gies (Sharpe Ratios and Proportions of In-the-Market) . . .. . . . . 236

B.37 Performance Summary of Voting among Trend-Based Regression Strate-

gies (Numbers of Trading) .. . . .. . .. . ...
.. . . .. . . .. .. . 237

B.38 Performance Summary of Voting among Trend-Based Regression Strate-

gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1)
(Annualized Returns and Annualized Volatilities) .. . . . .. .. ... 238

B.39 Performance Summary of Voting among Trend-Based Regression Strate-

gies with Index Return and Chg. of Trad. Vol. (W1 : I2 = 1 : 1)
(Sharpe Ratios and Proportions of In-the-Market) . . . . . . . . . .. 239
B.40 Performance Summary of Voting among Trend-Based Regression Strate-
gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1)
(Numbers of Trading) . .......... . . ..... ... . .... . 240
B.41 Performance Summary of Voting among Trend-Based Regression Strate-
gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1)
(Annualized Returns and Annualized Volatilities) .. . . . . . . . . 241
B.42 Performance Summary of Voting among Trend-Based Regression Strate-
gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1)
(Sharpe Ratios and Proportions of In-the-Market) . . . . . . . . . 242
B.43 Performance Summary of Voting among Trend-Based Regression Strate-
gies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1)
(Numbers of Trading) ............ . . ... ... . . . . 243
B.44 Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies (Annualized Returns and Annualized Volatilities) ... . . 244
B.45 Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies (Sharpe Ratios and Proportions of In-the-Market) . ... . 245
B.46 Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies (Numbers of Trading) . ...... .... ..... . ..... 246
B.47 Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies with Index Return and Chg. of Trad. Vol. (W 1 : W2 = 1 : 1)
(Annualized Returns and Annualized Volatilities) . .. ... . . ...... 247
B.48 Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1)
(Sharpe Ratios and Proportions of In-the-Market) . . . . .. . . ... . 248
B.49 Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1)
(Numbers of Trading) ........... . . .. . . .. . . . . . 249
B.50 Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies with Index Return and Chg. of Trad. Vol. (W1 : 12 = 2 : 1)
(Annualized Returns and Annualized Volatilities) . . . .. . .. ... 250
B.51 Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies with Index Return and Chg. of Trad. Vol. (W 1 : W2 = 2 : 1)
(Sharpe Ratios and Proportions of In-the-Market) .. . . ... . .... 251

B.52 Performance Summary of Voting among Nearest Neighbors Algorithm

Strategies with Index Return and Chg. of Trad. Vol. (WI : W2 = 2 : 1)
(Numbers of Trading) . .... ..... . .. . . ........ ... . 252

B.53 Performance Summary of Voting among All Strategies

(Annualized Returns and Annualized Volatilities) . .. . . .. . . .. 253

B.54 Performance Summary of Voting among All Strategies

(Sharpe Ratios and Proportions of In-the-Market) . .. . . .. . . .. 254

B.55 Performance Summary of Voting among All Strategies

(Numbers of Trading) . . ........ . . .. . . .... ....... . . 255

B.56 Performance Summary of Best Performer Selection among Moving Av-

erage Convergence and Divergence Strategies .. . . .. . . . . . . 257

B.57 Ranking Transition of Top 10 Moving Average Convergence and Di-

vergence Strategies in Five Subsequent Periods . . . . . ..... ... 258

B.58 Performance Summary of Best Performer Selection among Trend-Based

Regression Strategies . .. .... ........ .. ... . ... .. . 259

B.59 Ranking Transition of Top 10 Trend-Based Regression Strategies in

Five Subsequent Periods......... . ... ... . ... ...... . 260

B.60 Performance Summary of Best Performer Selection among Trend-Based

Regression Strategies with Index Return and Chg. of Trad. Vol.
(W1 :W 2 = 1:1) . . . . .. . . . . . ........ . . .. . ... . 261

B.61 Ranking Transition of Top 10 Trend-Based Regression Strategies with

Index Return and Chg. of Trad. Vol. (W1, : 1W2 = 1 : 1) in Five
Subsequent Periods ................. . . . . .. . . 262

B.62 Performance Summary of Best Performer Selection among Trend-Based

Regression Strategies with Index Return and Chg. of Trad. Vol.
(Wi : W 2 = 2: 1) ..... . ..... . ...... . ... . .... . 263
B.63 Ranking Transition of Top 10 Trend-Based Regression Strategies with
Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1) in Five
Subsequent Periods . ........................... 264
B.64 Performance Summary of Best Performer Selection among Nearest
Neighbors Algorithm Strategies . .................... 265
B.65 Ranking Transition of Top 10 Nearest Neighbors Algorithm Strategies
in Five Subsequent Periods . . ....................... 266
B.66 Performance Summary of Best Performer Selection among Nearest
Neighbors Algorithm Strategies with Index Return and Chg. of Trad.
Vol. ( : W2 1 : 1) . . .. . . . . . 267
B.67 Ranking Transition of Top 10 Nearest Neighbors Algorithm Strategies
with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1) in Five
Subsequent Periods . ........................... 268
B.68 Performance Summary of Best Performer Selection among Nearest
Neighbors Algorithm Strategies with Index Return and Chg. of Trad.
Vol. (W i : W2- 2 : 1) .................... ..... 269
B.69 Ranking Transition of Top 10 Nearest Neighbors Algorithm Strategies
with Index Return and Chg. of Trad. Vol. (W 1 : W2 = 2 : 1) in Five
Subsequent Periods . ........................... 270
B.70 Performance Summary of Best Performer Selection among All Strategi es271
B.71 Transition of monthly Top 10 Strategies (1998-2000) . . . . . . . . . . 272
B.72 Transition of monthly Top 10 Strategies (2001-2003) . . . . . . . . . . 273
B.73 Transition of monthly Top 10 Strategies (2004-2007) . . . . . . . . . . 274
B.74 Transition of yearly Top 10 Strategies (1997-2006) . . . . . . . . . . . 275
B.75 Ranking Transition of Top 10 Strategies in Five Subsequent Periods . 276
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Chapter 1

Introduction

1.1 Motivation
If the market is efficient, current prices of risky assets have been determined such
that nobody cannot exploit profit by forecasting price movements with certainty. In
other words, current market prices are determined with all the available information
at present which is useful for prediction (Fama, 1970).
If it is true, all the efforts to beat the market by predicting future prices/returns
becomes merely vain. If somebody beat the market, it is just a luck and he or she
cannot keep beating the market. Because, if somebody could forecast future prices
based on some information with certainty, that information would spread out, other
people would follow the same strategy, and finally the current prices would be adjusted
not to allow any sure profit in future.
On the other hand, quantitative trading strategies or quantitative trading rules
have been evolving rapidly in a few decades along with the growing computing power,
increasing availability of various data streams, introduction of the electronic ex-
changes, decreasing trading costs and heating-up competition in financial investment
industry.
These strategies challenge the Efficient Market Hypothesis by trying to forecast
future price movements of risky assets from the historical market information in
algorithmic ways or in statistical ways. They are trying to find some patters or
trends out of the historical data and to use them to beat the market benchmark.
Thinking about any possible source for inefficiency, it would be important to
recognize that majority of market participants are still humans such as institutional
traders and individuals, even though the trading volume by algorithmic trading has
been growing recently. As human, more or less, they could have behavioral biases
such as over/under-reaction to new market information, risk-aversion rather than
seeking upside opportunity, framing by situational context, herding toward a certain
direction, and so on. Therefore, aggregated behaviors in the market could be affected
by these human natures and that could be a source of market inefficiency.
Motivated by the possibilities of market inefficiency as well as market predictabil-
ity as a consequence, this study examines the performances of multiple quantitative
trading strategies using the historical data of a stock index and related market infor-
mation data for decades.

1.2 Overview
Here I present an overview of the following chapters. Firstly, I review the literature
on the Efficient Market Hypothesis and the literature on the quantitative trading
strategies in chapter 2.
Next, in chapter 3, I introduce several quantitative trading strategies. Those
strategies contain various types of strategies from simple rules to data-mining algo-
rithms, from linear approaches to non-linear approaches, and from time proximity-
based approaches to pattern proximity-based approaches, even though these strategies
are for trading a single stock index. As for historical information to use, the strate-
gies utilize the historical data of the stock index itself, trading volume movement,
risk-free rate movement and implied volatility movement in order to generate buy or
sell trading signals.
In chapter 4, I present how to evaluate and compare the performances of multi-
ple strategies. In addition to the traditional metrics such as risk-adjusted return, I
introduce a viewpoint of total holding periods of a risky asset in relation to whole
time horizon of trading. The reason is that a strategy with smaller number of periods
for market exposure would be more favorable than a strategy with larger number of
exposure periods with the same return in terms of the market crunch risk.
In chapter 5, firstly, I examine the statistical properties of the historical data
including correlation analysis among the variables used for the strategies. Results of
the analysis are used to understand the performances of the strategies later. Next, I
examine the performances of the introduced strategies empirically, i.e. by executing
back-tests assuming that daily S&P 500 stock index is a risky asset to trade. Then,
I attempt to articulate and decompose the source for successes of some strategies in
the back-tests into several factors in intuitive way.
Lastly, in chapter 6, I conclude the study by reviewing the findings from the
empirical analysis on the effectiveness of the quantitative trading strategies.
THIS PAGE INTENTIONALLY LEFT BLANK
Chapter 2

Literature Review

2.1 Studies on Market Efficiency

An issue on market efficiency or the Efficient Market Hypothesis (EMH) had started
to be addressed empirically by Kendall (1953) with the strong support of computing
technology and financial data sets. Interestingly, at the time, it was considered that
price movements could be predicted to some extent. Kendall (1953) studied the time
series of weekly stock prices and weekly commodity prices in exchanges and found
that "The data behave almost like wandering series".
As the first formal economic approach to the issue, Samuelson (1965) introduced
the concept of a martingale and provided a mathematical framework to explain the
formulation of future asset price.
Fama (1970) defined the efficient market as "A market in which prices at any time
"fully reflect" available information" and classified the EMH in three levels in terms
of the available information set: 1.weak form in which the information set is historical
prices, 2.semi-strong form in which the information set is all the publicly available
information in addition to the historical prices, 3. strong form in which the information
set is all information relevant to price forecast including private information.
Fama (1970) reviewed literature which addressed the first level EMH based on
Expected Return Models and the Random Walk Model, literature about the second
level EMH based on the Submartingale Model, and literature to study the third level
EMH by Sharpe-Lintner Model, concluding that "with but a few exceptions, the
efficient markets model stands up well". Even though statistically significant serial
correlations were often reported in the studies reviewed, Fama (1970) is pointing out
that statistical significance does not necessarily mean financial/economic significance
which are able to be exploited in practice.
In the middle of dominance of the EMH, Lo and MacKinlay (1988) found that
weekly stock returns from 1962 to 1985 had serial-correlations and rejected the Ran-
dom Walk Hypothesis by applying the asymptotical variance ratio test they devel-
oped. Other evidences against the Random Walk had been found as well. DeBondt
and Thaler (1985) examined monthly stock returns finding that they were consistent
with the market over-reaction hypothesis. In contrast, Abarbanell and Bernard (1992)
found the evidence that analysts' forecasts tend to under-react to recent information
about a firm's earnings. Market seasonality such as the January effect (Rozeff and
Kinney, 1976) and the Monday effect (French, 1980) had been reported repeatedly.
Fama and French (1996) showed that stock returns could be explained well by the
size of firm and book-to-market equity. The weather effect found by Saunders (1993)
implies that market participants are affected by their moods from a large point of
view.
As an alternative to provide reasonable explanations for those market anomalies,
behavioral finance which traces back to cognitive science has discovered suggestive
economic behaviors such as loss aversion (Tversky and Kahneman, 1979), mental
accounting (Tversky and Kahneman, 1981), biased estimation of probabilities (Slovic,
Fischhoff, and Lichtenstein, 1982), overconfidence (Fischhoff, Slovic, and Lichtenstein,
1980), herding (Huberman and Regev, 2001), and so on.
There is a strong criticism that behavioral approach is not well formulated and
it can explain any anomaly by combining "right" biases. However, it is clear that
market participants are under the effect of behavioral and cognitive biases to some
extent if not dominated. Subrahmanyam (2007) is reviewing the both empirical and
theoretical literature in this field over the past two decades.
As a study to understand a detailed mechanism of informniation-driven behavior,
Lo and Repin (2002) studied the relationships between three types of market events:
deviations, trend reversals, and volatility events, and physiological reactions of pro-
fessional securities traders to those events. They found that aroused emotions were
taking an important role even for the experienced traders to make rational decisions
if not analytical.
Lo (2004) takes the behavioral approach as a key component to integrate the EMH
and its counter evidences and is proposing the Adaptive Markets Hypothesis (AMH)
as follows.

Specically, the Adaptive Markets Hypothesis can be viewed as a new

version of the EMH, derived from evolutionary principles. Prices reflect
as much information as dictated by the combination of environmental
conditions and the number and nature of species in the economy or, to
use the appropriate biological term, the ecology.

From the discussion on the AMH, Lo (2004) is deriving practical implications such
as time-varying risk/reward relation, temporal existence of arbitrage opportunities,
existence of investment opportunities, and the importance of innovation to survive.

2.2 Studies on Quantitative Trading Strategies

Quantitative trading strategies or mechanical trading rules have been studied as tests
of the EMH as introduced in previous section. James (1968) examined trading rules
based on the unweighted moving average and the exponentially smoothed moving
average. Lo and MacKinlay (1990) examined a contrarian portfolio allocation strategy
whose expected profits were decomposed into three terms. Jegadeesh (1990) studied
portfolio allocation strategy based on lagged returns. Brock et al. (1992) examined
the two simplest technical trading rules: moving average-oscillator, also called moving
average divergence convergence (MACD), and trading range break-out, also called
filter rule. The same strategies were tested in European markets by Fifield et al.
(2005) and in Asian markets by Cai et al. (2005). Conrad and Kaul (1998) examined
momentum and contrarian strategies for stock portfolio. Kwon and Kish (2002)
examined moving average strategies in combination with momentum and trading
volume. Shen (2003) examined market timing strategies based on spreads between
E/P ratio and interest rate. Giannetti (2007) tested a market timing strategy based
on E/P ratio. Kaminski and Lo (2007) examined a stop-loss rules for market timing.
In these literature, the principal object of consideration is not trading strategy itself
but whether the EMH holds or not.
On the other hand, trading strategies have been developed and studied as rel-
atively important objects of interest and application mainly in other communities
than finance such as computer science, applied mathematics and statistics, even if
the studies were conducted in the context of the EMH. Ammann and Herriger (2002)
examined statistical arbitrage strategy based on relative implied-volatility. Schit-
tenkopf et al. (2002) tested strategies based on linear autoregression, non-linear neu-
ral network, symbolic Markov model, mixture of them, and GARCH. Andrada-Felix
et al. (2003) proposed trading rules based on non-linear nearest neighbor predictor
and linear ARIMA predictor. Perez-Rodriguez et al. (2005) developed and tested
three non-linear strategies: smooth transition auto-regresive models, artificial neural
networks, and nearest neighbors. Matilla-Garcla (2006) applied genetic algorithms to
seek optimal combination of gene solutions. Warburton and Zhang (2006) analyzed
the properties of a strategy with stop-loss, take-profit and price breakout rules.
Chapter 3

Quantitative Trading Strategies

Quantitative trading strategies or mechanical trading rules can be defined as a com-

bination of an algorithm to generate buy and sell trading signals and a set of policies
to trade assets using the generated signals, with an expectation to beat some target
benchmark. An algorithm to generate buy and sell signals can be based on historical
price data only or based on other information such as macro economic data, finan-
cial data of corporations, some relationships with other assets prices, trading volume
data, weather and climate data, and so on.
In any case, the objective of analyzing the historical data is to predict future price
or return to a certain extent. It is different from arbitrage strategy which exploits an
existing price discrepancy between the same assets in different markets or between an
asset and its synthesized equivalent. A set of policies to trade assets with generated
trading signals would be such as usage of short position, usage of financial leverage,
maintenance of proportions among assets, and so on. Therefore we can create several
different trading strategies with the same trading signals followed by different trading
policies.
In this study, I focus on market-timing trading strategies for a single risky asset
based on historical data of asset price, trading volume, implied volatility and risk-
free rate, with a simple trading policy which employs long position only without any
leverage. Also I assume that interest earnings of cash position is zero in order to
detect and analyze performances and predictability of trading strategies comparing
to the buy-and-hold benchmark more clearly.
As for specific strategies to examine, I consider two groups of strategies. One
group is strategies based on time proximity which try to extract predictive information
from recent trends in data. The other group is strategies based on pattern proximity
which try to find similar pattern from the past data with a belief that history repeats
itself. In addition to the two main groups, I also examine effectiveness of meta-level
strategies which integrate predictive powers of multiple trading strategies.
In the following sections, firstly I formally define trading strategy for a single
risky asset. Then, I explain specific trading strategies to use for empirical analysis in
the following order, strategies based on time proximity, strategies based on pattern
proximity, and meta-level strategies.

3.1 Strategy for a Single Risky Asset

Assume we trade a single risky asset during T years which is divided into N trading
periods. The kth period starts at time (k - 1) and ends at time 1k.
A rate of return of the asset during a single period rk is calculated at time k from
the asset prices at time T(k - 1) and k (Pk-1 and Pk respectively) as In Pk- In Pk-1.
A rate of return during the whole trading periods R is a sum of rates of return in
each period, and a geometric mean of a single period return r is obtained by dividing
R by the number of periods N.

Trading horizon : T years with N periods

T T
kth period : from time (k - 1) to time -k
N N
T
Asset price at time -k: Pk
N
Rate of return of the asset during kth period : rk = In Pk - In Pk-1
N
Rate of return of the asset during all periods : R = rk = In PN - In Po
k=1
 R 1 1
Average rate of return for a single period : r - k= (in P - In Po)
k=1

A trading decision about the asset and a subsequent trading for the kth period are
made at time T(k - 1) and the position is maintained until timenk. For simplicity
and clarity of later analysis, assume that interest earnings of cash position is zero.

Interest rate for cash position : rcash = 0

3.1.1 Trading Signal

Define a trading signal (for a single risky asset) sig as a, set of instructions whether
to stay in a long position of the asset (In) or to stay out of the position (Out) for
each trading period.
Therefore a trading signal divides a set of trading periods TP with N periods into
two subsets TPj, with Ni, periods to stay in and TPot with No"t periods to stay out.

A trading signal for period k generated at the end of period k - 1: sigk = In or Out

A set of trading signals during trading horizon : sig = (sigl,sig2,.. sigN)

sig : TP --- {TP,, TPout} s.t. TPi, U TPuot = TP, TPB, % t=

n TPoI

where
TP= {klk= 1,2,...N}

TPir= {li i= 1,2,.- Nin}

TPout = {0jI= 1,2, - No

Ni, + No~ t = N
3.1.2 Trading Policy

Define a trading policy (for a, single risky asset) tp as a method to trade the asset
based on trading signals. In this study, assume we can take one of the following three
trading policies without any financial leverage.

tp = {L, S, LS}

L : a trading method which holds only long position when in TPi,

S : a trading method which holds only short position when in TPot

LS: a trading method which switches between long position and

short position depending on whether in TPin or in TPot

3.1.3 Trading Strategy

Define a trading strategy (for a single risky asset) ts as a combination of a trading

signal sig and trading policy tp. As a benchmark, consider a simple buy-and-hold
strategy.

ts = ts(sig, tp)

BH: a bench mark strategy which just buys the asset and
holds a long position during all trading periods

In the following sections about specific strategies, I only focus on how to generate
trading signal sig with a trading policy (tp) fixed to the same one. Because, a quality
of trading signal is the most essential factor for a certain trading strategy to be
successful.
Trading policies such as financial leverage and usage of short position can amplify
the effect of trading signals. However any trading policy cannot make up for the
deficiency in trading signals. Therefore, regarding choice of trading policy, I use long
position only policy (tp = L) as a fixed policy for all strategies. The reason is that
performances with other polices such as S and LS have linear relations to performance
with policy L as we will see in chapter 4 about evaluation of strategies.
By fixing trading policy to the long position only, we can compare performances
of various trading strategies in terms of trading signal sig which is the most essential.

Under the long position only policy L, actual trading based on trading signals sig
is executed by the following rules.

Buy the asset at the beginning of period t, if sigt = In and sigt-1 = Out
Sell the asset at the beginning of period t, if sigt = Out and sigt-1 = In
Hold the previous position of the asset/cash during period t, if other cases

3.2 Strategies Based on Time Proximity

We can expect that recent trends such as price movements contain some information
to predict future return or price if market behavior is biased to a certain extent.
Strategies based on time proximity have this motivation in common.
Specifically I introduce contrarian strategy, momentum strategy, moving average
based strategy, and the other trend-based strategy in the following sections.

3.2.1 Contrarian and Momentum

Contrarian strategy is based on an assumption that market tends to over-react both

positively and negatively to new information. If it is the case, over-shooted price will
be adjusted in next periods.
Therefore, its basic trading rule is that being in the market after negative return
periods and being out of the market after positive return periods with a certain non-
negative threshold 0 based on historical rate of return volatility 5 at the time of
prediction.

In, if rt-1 < _t_-1

--
Contrarian(period,9) : sigt = Out, if rt-1 > 0 at-1
sig-_1 , if 07t_-1 rt_ 1 > -0--t_

where
period = {daily, weekly, monthly, yearly}

rt = rate of return between time points based on period

"t = historical rate of return volatility at time t

0 = threshold, 0 > 0

On the other hand, momentum strategy assumes that market tends to under-react
and current trend will be maintained for certain periods. Therefore its trading strat-
egy is the opposite of contrarian.

In, if rt-1 > 09T-1

Momentum(period,8) : sigt = Out, if rt-1 < -- 5:tl_
sigt-1 , if 09-t-1 Ž rt-1 > -0Ž-t_

where
period = {daily, weekly, monthly, yearly}

rt = rate of return between time points based on period

5t = historical rate of return volatility at time t

 0 = threshold, 0 > 0

3.2.2 Contrarian and Momentum on an Arbitrary Market

Information Variable

Contrarian and momentum strategies in the previous section utilize the past return
as a predictor of the future return. However we don't have to restrict the predictor
to the past return. For example, change of trading volume or change of risk-free rate
could be better predictors of the future return of an asset.
Therefore I expand the contrarian and momentum strategies by replacing the past
return with an arbitrary market information variable v as follows.

In, if vti < -0e -1

Contrarian(period,v, 0) : sigt = Out, if Vt_1 > 0 it-1
0
sigt- 1 , if 036t-1 > vt-j > - -t-1

where
period = {daily, weekly, monthly, yearly}

v = market information variable

vt = time series of v

6t = historical volatility of v

0 = threshold, 0 > 0

In the same way, momentum strategy based on market information variable v is,
 In, if Vt•_ > 0 6t-

Momentum(period, v,0) : sigt = Out, if Vtl < -o at-1

sigt1_, if 0 3t1 > vtj1 > -0 t-I

where
period = {daily, weekly, monthly, yearly}

v = market information variable

vt = time series of v

6t = historical volatility of v

0 = threshold, 0 > 0

As we can easily see from above, the original contrarian and momentum strategies
are the special cases in which v is set to the rate of return of an asset.

3.2.3 Moving Average Convergence Divergence

A strategy based on convergence and divergence of moving averages with different

time windows is one of the most popular trading rule among technical analysis traders.
It is called Moving Average Convergence Divergence or MACD in abbreviation.
Its underlying assumption is that a robust trend line exists in price movements
and it can be detected by filtering daily ripples. In order to detect the trend this
strategy uses two (or three in some cases) moving averages of price with shorter time
window and longer time window.
It generates buy signal when shorter window moving average crosses longer win-
dow moving average from beneath and generates sell signal when shorter window
moving average crosses longer window moving average from above. By construct, as
we can see from the algorithm, this strategy doesn't predict future trend proactively
but try to follow a trend which has been becoming tangible already.

AIACD(ShotWindowSize, LongWindowSize, )

In, if sigt-_ = Out and shortMAtI_ > (1 + 0) longMAt_l

In, if sigt-1 = In and shortMAti < (1 + 0) longMAt_l
sigt =
Out, if sigt-1 = In and shortMAtl < (1 - 0) longMAt_
Out, if sigt- = Out and shortMAt-I > (1 - 0) longMAt _

where
1 A
shortMAt = k
ShortWindowSize
k=t-ShortWindowSize

IongMAt E rk
LongWindowSize
k=t-LongWindowSize

ShortWindowSize = number of periods to calculate short term moving average

LongWindowSize = number of periods to calculate long term moving average

0 = threshold, 0 > 0

rt = daily rate of return

3.2.4 Trend-Based Regression

In addition to the previous popular strategies, I examine a simple statistical strategy

which I developed and named trend-based regression strategy. The idea is to predict
future return from recent trend by regression.

Its procedure is the following. Firstly, select a length of time window for trend
pattern, W, and number of recent trend series with the time window, K, and regress
returns at the end of time window in K trend series on previous W - 1 returns in K
trend series.
 0
rt-l rt-2 rt-3 .. rt-w-1
3
1
... rt-W-2
Tt-2 rt-3 rt-4
2

rt-K-1 ... t-W-K

rt-K rt-K-2
3Ww
t VY

Next predict a return for next period based on ordinary least squares estimators
of /pi.
t= o-+01 rt-1 +
i02 rt-2 + "+" W rt-W

i = ordinary least squares estimator of Oi

Finally generate trading signals based on the prediction with threshold. The
threshold is based on a discrepancy measured by the historical volatility from the
historical average return.

In, if rt > 0 Zt-1 -+ t-1

Trend based Regression(W,K, 9) : sigt = Out, if it < -0Tt-1 + 7Tt-1

sigt-1, if 0-5t_ 1 + 77t-1 - iAt > -0o*e+t-1 -Tt

where
Ft = forecasted daily return for period t

Tt = historical average of daily return at t

5t = historical rate of return volatility at t

W = time window size

K = number of recent trend series, K > W

0 = threshold, 0 > 0
3.2.5 Trend-Based Regression with Multiple Market Infor-
mation Variables

We can modify the trend-based regression strategy to utilize not only price history but
also other market information such as trading volume, risk-free rate and/or implied
volatility expecting that they provide additional useful information to predict future
return.

If we introduce m market information variables vi and time windows for them

Wi, (i = 1, 2... m), then we can modify the original strategy as follows.

Tt-1

Tt-2

7t-K

0o

wi
2 2 m
vt- 2 SVt_ -W1 -2 vt- 2 " t-W2-1
m
t-2 Ut-Wm -1 W2
20
1 ." vt - Wl -w2 2 2
vt- 3 Ut-3 • " t-W2-2 . t-3 Vt-Wm-2

1 1 2 2
SVt-W
m-K - 2W
Vt-K-1 t-W1- K Vt-K-1 2 -K t-K-l 't-Wm-K / Wkn

-+Ol
V VW+ t- +42 Vt -w1
2 t 1Wm
+1 t-W1

o = ordinary least squares estimator of /o

op = ordinary least squares estimator of 0

Trend based Regression(v1 , W1 ; v2 • W2 ... v" , W; K, 0)

In, ifFt > 0•-1i +Tt-1

sigt Out, if ýt < -Ot-1 +1rt-i
sigt-1, if OTt-1 + Tt-1 > rt > -Out-1 +-Lt-- 1

where

't = forecasted daily return for period t

Yt = historical average of daily return at t

-t = historical rate of return volatility at t

S= time series of market information variable vi

Wi = time window size for vi

rn = number of market information variables

K = number of recent trend series, (K > Z 1/i)

i=1

0 = threshold, 0 > 0

3.2.6 Conditional Probability Table

It is possible to trade an asset based on the expected future return given certain com-
bination of market information variables. I call this strategy conditional probability
table (CPT) strategy here.
To obtain the conditional probabilities, we can segment the values of variables in
decile for example. However this procedure leads to creating a huge number of events,
in case of the example, 10 to the power of the number of variables to use.
In order to obtain the expected return avoiding this curse of dimensionality, mar-
ket information variables are encoded as binary numbers (1 or -1) in this study. To
estimate the conditional probabilities, count the number of events occurred during
the time window K.

Esgunl- ,sgnm

Prob(rt > 0 sgn(v') = sgnlA ... Asgn(vm) = sgnm)) 2n 1 (sgn(rt,+l) + 1)

s2ngn,--,sgnm j=E
where

number
sgnl,,..,sgnm =-- of an event (sgn(v' ) = sgnA .. Asgn(vm) = sgn,) from t-K-1 to t-2

tj = periods when the event occurred (t - K - 1 < tl < t2 _< " < t, < t- 2)

v=
I time series of market information variable vi

m = number of market information variables

K = number of recent trend series or time window

1, for x > 0
sgn(x)= 0, for x = 0
-1, for x < 0

Then, given the event occurred at t - 1, refer the conditional probability of positive
future return at t, and generate a trading sgnal for period t.

CPT(v1 , v 2 ,... , vm ;K)

In, if Prob(rt > 0 sgn(v') - sgn(vll) A ,,/ A sgn(vm) - sgn(v7Ul)) > 0.5

Out, if Prob(rt > 0 sgn (v') = sgn(v•_1 ) A ... A sgn(vm) = sgnr(vl)) < 0.5
sigt =
sigtl, if Prob(rt > 0 sgn(v') = sgn(v]_l) A .. A sgn(rvm) = sgn(vY"l)) = 0.5
or the event(sgn(v1 ) = sgn(vlt-1) A ... A sgn(vm) = sgn(v1ll)) is not found during K
3.3 Strategies Based on Pattern Proximity
So far I have introduced strategies based on time proximity. Here I introduce strate-
gies based on pattern proximity which search similar patterns of market movement
from the past, being indifferent to whether one pattern is more recent than another.
The underlying assumption is that history tends to repeat itself.
In order to develop strategies based on pattern proximity, I introduce an popu-
lar data-mining algorithm, the Nearest Neighbors algorithm, which searches similar
patterns to a reference from data repository.

3.3.1 Nearest Neighbors Algorithm

Nearest Neighbors (NN) algorithm is popular in context of data-mining. It is used

to search similar samples to a cue from a data repository and to predict value of
objective variable based on values of objective variables for those similar samples
called nearest neighbors.
More specifically, each sample with a certain objective value and multiple at-
tributes is represented as a vector in multiple-dimension space. By defining some
distance norm between samples, a certain number of nearest neighbors to a sample of
interest are searched. Lastly, with a certain function of objective variables for searched
samples given, value of objective variable for the reference sample is predicted.
For the purpose of stock return forecast, we can set rate of return series of certain
periods as a sample. Objective variable for each sample is the next return after the
end of the periods.
Based on the method of Andrada-Felix et al. (2003), let the number of sample
periods m and the number of nearest neighbors to search k. Use absolute value of
correlation coefficient p between return series as a distance norm in order to search k
nearest neighbors as follows.
 k nearest samples to ro = (rt-1, rt-2,'' , rt-m)

rl = (rt-l, rt,-2, " ' ,Tk-m)

r2 (rt2 -1, rt-2, •Tt k-m)

rk = (rtk-1, rtk-2,". 7tk-m)

where
maxlp (ro, ri) I= p (ro, ri) I p(ro, r2) . '" Ip(ro, rk) I

ti < t- 1 (i =- 1,2, .. - k)

m nearest neighbors in hand, predict next period return ýt by regression or by

arithmetic average. When use regression, estimators of / can be obtained by regress-
ing next period returns of k nearest neighbors on k nearest neighbors return vectors
with size m.

0o
01
/2

O3M

t = ordinary least squarest-2 estimator oft-m

0 = ordinary least squares estimator of Oi

 When use arithmetic average to forecast, we can estimate next period return as
follows.

1
j=

Finally generate trading signals as follows.

In, if ýt > 0 t-i +rt- 1

NN(m, k, 0, method) : sigt = Out, if Pt < -O0t- 1 + t- 1

Žt
sigt-1, if 0 -(t-I+ Te-I > > -0 Z'-I1 + t-1

where
?t = forecasted daily return for period t

7t = historical average of daily return at t

5t = historical rate of return volatility at t

m = time window size

k = number of nearest neighbors

0 = threshold, 0 > 0

method = {regression, arithmeticaverage}

3.3.2 Nearest Neighbors Algorithm with Multiple Market
Information Variables

Just like a modification in case of trend-based regression with multiple market infor-
mation in previous section, NN algorithm can include multiple market information
variables as follows.

Find k samples which are the nearest to a recent trend. In case of the NN with
multiple variables, the recent trend is represented as a synthesized vector whose ele-
ments are parts of time series of multiple market information variables.

The norm of distance between two samples is an absolute value of correlation co-
efficient between two samples, as introduced in case of the NN with single variable.

k nearest samples to (v l , v ,vmo) = (vtl- 1 " " " Vt-wlVt2

1 . VVt-W2
2 ., I 1t- W

(V11 V21 " "1 Vml) -- (Vm

1 ...... 1_ 21-1 2tl-W2' " m
tl-1 .- t Vt-Wm
i-W

17V2)2 ... Vm2) _V2

V1 2 1 .
1
1
Vt2 ,
2
t2 _ I t V2
2 m
t2_- 1
m
V t2_Wm)

(V•,2 , V k) (Vt 2 - 1 *** -W1

(V, V - (V 1 . W1, -- ... tk W2, . . tk- 1 . . tkWm )

where

maxlp ((v 1 v ,..., vm0), (v ,v ,...,vmi =

p ((v 1 , V2, . vmo), ( , . , vm))) Ip (( vV2, ,vmo), (V ,VV•,.. Vmk))

ti <t- 1(i= 1,2,"'.k)

 Return forecast by regression method is,

0o

rtl V1 V ... m
rt 2 V2 V2 . 2

/~W2
rtk 1 Vk Vk ... Vmk

0p

•m
'wm /

rt= 0o+01 Vt-i+- + 1 1•w 2 2

.hW 12lt--W1+01 Vt-i++. .±.rtm
.+ r vt ·
tn + .l
mV
"hWin
m
vt-Wm

0o= ordinary least squares estimator of io

4 = ordinary least squares estimator of

Return forecast by arithmetic average method is,

1 k

j=1

Generation of trading signals is,

NN with Multiple Inf ormation(v1 , W1; v 2 , W2; S;v,Wm; k,, method)

In,if rt > 0 -t-1 + -t- 1

sigt = Out, if rt < -0.t-1 +-~t-1

sigt-1, if <t-1 + Tt-1 2 t -57t-1

0 + ft-1
where
Ft = forecasted daily return for period t

ft = historical average of daily return at t

et= historical rate of return volatility at t

i = time series of market information variable v i

Wi = time window size for vi

m = number of market information variables

k = number of nearest neighbors

0 = threshold, 0 > 0

method = {regression, arithmeticaverage}

3.4 Meta-Level Strategies

Until now I have introduced multiple strategies to trade single risky asset. However,
those individual strategies have a serious problem in trading practice. That is how to
select the right strategy from a number of strategies with different parameter values.
To cope with this problem, we can consider meta-level strategies which integrate
individual strategies and automatically select a particular strategy for next period.
Here I introduce two meta strategies.

One is a strategy which selects the best performer from multiple strategies in
previous period and apply the strategy to the next period. In this way, we don't have
to forecast which strategy is going to be better.

The other is a strategy which selects several top performers and makes them vote
for the next period action. This also allows us not to select a strategy based on our
guesswork.
3.4.1 Best Performer Selection

Even though only one strategy is used for actual trading in a certain period, we
can calculate the performances of all other strategies in parallel. This meta strategy
selects the best performance strategy using the tracking information of performances.
First pick up a strategy with maximum rate of return in the previous period.
Then apply the selected strategy to the next period and repeat this procedure during
investment time horizon.

Best Performer Selection(period) : sigt = sig(smax)t, smax = argmax r(s)t_1

sEstrategies

3.4.2 Voting

Instead of selecting just one strategy, we can pick up multiple best performing strate-
gies and determine the next trading decision by voting of those multiple best strate-
gies. Underlying assumption is that the integration of individual signals provides
better forecast.

In, if nint > nhout t

Voting(k,period) : sigt = Out, if nin,t < out,t
sigt_1, if nin,t = not,t

where
max r(s)t-1 > r(si)t-1 > r(82)t-1 > . .. > r(Sk)t-1
sEstrategies

nin,t = number of In signals among the k best strategies predicted at the end of t-1

nout,t = number of Out signals among the k best strategies predicted at the end of t-1

nin,t + rout,t = k
Chapter 4

Evaluation of Strategies

Consider how to evaluate a trading strategy ts when reaching a trading time horizon
T. Resulting rate of return and risk-adjusted rate of return of a trading strategy in
comparison to the buy-and-hold benchmark could be the most important measures.
However there is other factors to be taken into account.

Firstly, there is an issue of trading costs. If two trading strategies have the same
risk-adjusted return, the strategy with the smaller number of trading during the time
horizon is better.

Secondly, two trading strategies with the same rate of returns could have the
different proportions of in-the-market periods to the entire time horizon. A strategy
which tends to have the smaller proportion of in-the-market periods to the time
horizon could be more immune to a jump event or the market crunch.

Thirdly, If the proportion is zero, which means always being out-of-the-market,

then rate of return is going to be zero under the assumption in this study that interest
earnings of cash position is zero. In reverse, if the proportion is one, rate of return is
going to be equal to that of the benchmark. Between the two cases, we will be able
to obtain the largest return, if we can correctly chose in-the-market periods with the
largest period returns from all periods. Therefore we can also evaluate a performance
of a trading strategy in relation to the possible boundary of return. I present these
ideas in detail in the following sections.
4.1 Property of a Trading Signal
Define rin and rout as average single period rate of returns during TPIn and TPo,t.

1 Nin
i n i=1

Nout
Trout -- t roj
out _O,
j=1

Ninrin + Noutrout = Nr = R

Also define pin and pout as proportions of Nin and Not to N. pin and pout can be in-
terpreted as probabilities that a certain period falls in TPTn or TPout under a trading
signal sig.

P in
pin = N

Nout
Pout =

Pin + Pout = 1

4.2 Upper Boundary for Rate of Return

Consider a set of trading signals which generate the same number of periods to stay
in the market (and the same number of periods to stay out of the market). Each
element of this set of trading strategies gives us its average rate of return with the
same number of in-the-market periods.
 We can pick up the maximum average return given a proportion of in-the-market
pin. Define this possible maximum average return given pin, as rupper(pin).
After observing asset price Pk for all periods, we can calculate ruppe"(pin) by picking
up the Nin largest rates of return.

1Nin
rupper(Pin) - I PD,
where

max rk = rDi > rD2 > ""> rN,I D1 = index to sort rates of return in descending order
k

In case of that the number of periods N is sufficiently large and the distribution of
observed asset prices is close to a lognormal distribution with average rate of return
r and standard deviation (return volatility) a, we can estimate rupper(pin) as follows.

1 qexp (q - r)2 dq
rupper(Pin) = 2 2o-2
V "-7 0 Ir*(p)
where
r*(pin) = uN- 1 (1 - pin) + r

N-'(.): Inverse normal cumulative distribution function

4.3 Statistical Significance of Rate of Return (Lower

Boundary)
Now consider a statistical significance of a trading performance for given pin, using
z - statisitc for 5% single-sided significance level.
 Tin - r
Zo = > 1.6448

Therefor, when pn is given, a lower boundary which provides 5%-level statistical sig-
nificance criteria is the following.

rIl er(pin) = N r!in = 1.6448 + pinr

4.4 Performance Measures of a Trading Strategy

Given the results of a trading strategy, we can calculate the following measures to
evaluate the performance of the strategy.

Annualized Return = geometric average of rate of return during the trading horizon

Annualized Volatility = volatility of rate of return during the trading horizon

SR = risk adjusted rate of return (Sharpe ratio) during the trading horizon

pan = proportion of in the market periods to the whole trading horizon

NumOfTrade = number of executed trading during the trading horizon

The first three measures Annualized Return, Annualized Volatility and SR are the
traditional measures of investment performance. In this study, SR is calculated not
from the excess return to risk-free rate but from the return itself.
The forth measure pin can be used as a, proxy of a jump risk immunity, because
a trading strategy which constantly records smaller pin is in the out-of-the-market
position in many cases. Therefore the strategy can lower the risk of being hit by a
jump event such as the market crunch.

The last measure NumOfTrade stands for a proxy of trading costs. This measure
might seem to be similar to pin, however they are measuring different properties of a
strategy. For example, if one strategy bought an asset at the beginning and sold it
in the middle of the horizon, then Pi, is 0.5 and NumOfTrade is 2. On the other
hand, if the other strategy continued buy and sell periodically, then Pin is still 0.5 but
NumOfTrade is equal to N, the number of periods in the horizon.

In other studies, the number of trading is often converted to rate of return which
is used to adjust the original raw rate of return. In this study, I use NumOfTrade
instead of adjusting rate of return with the similar procedure, because the estimate
of the accurate trading costs for financial institutions is hard to obtain.

Lastly, I present the relationships among the rate of returns from three trading
methods, long position only L, short position only S and both positions available LS.
Define rL, rs, and rLS as average rate of returns for the three trading methods and
define ArL, Ars, and ArLs as average excess return comparing to an average rate of
return r of the benchmark strategy BH.

1 (pE0)
Nin Not N
Ni
i r
rL = +l--n ) - N= Pinrin
i=1 j=j

Nr N out N out )

TLS = (E r, +N (-ro)) = 2 pinrin - r

i=1 j=1
 Nin
ArL = - in -r r = piPrin - r
N
Ars = - n - 2r = pinrin - 2r
N

ArLs = 2(Nr in- r) = 2(pinTin - r)

As we can see from the equations above, in order to beat the market, ri, has to
be greater than -Pin for L and LS, if r is positive. On the other hand rin has to be
greater than 2-Pin- for S i.e. twice as large as a threshold for L and LS as long as r is
greater than zero.

If r > 0,
r
ArL, ArLS > 0 C- rin > -
Pin

2r
Ars > 0 - rin > --
Pin
Chapter 5

Empirical Analysis

In this chapter, I present the results and findings from the back-testing of the intro-
duced strategies. Firstly I explain a procedure of the back-test with historical data of
market information in order to examine performances of the introduced trading strate-
gies. Secondly, I examine correlation relationships between key market variables to
seek any possibility of price/return predictability which could affect the performances
of tested strategies. Lastly, I examine the results of the back-tests, strategy by strat-
egy, and try to understand the mechanisms of the observed performances from the
perspective of the correlation analyses between key variables.

5.1 Back-Testing

Back-testing is a popular way to examine the performance of a quantitative trading

strategy. It simulates trades of assets utilizing historical data of the assets and any
other additional information if necessary. One important assumption here is that we
could have bought and sold the assets at the realized prices in the past such as daily
closing prices, even though this might not have been the case in reality.
In addition to the issue, high performance in back-testing does not assure the same
high performance in future at all. Because, back-testing is a kind of backward-looking
methodology by its very nature and there is no guarantee that the future market will
behave like the past.
 Despite these drawbacks, the back-testing can still give us useful information to
understand why one strategy works well and the other doesn't depending on various
market situations which occurred in history.
For the purpose of performance examination of the strategies, I choose the S&P
500 stock index as a trading asset and use its historical closing price as a price at
which we could have traded the stock index. The reason of choosing the S&P 500
index is that the index is based on large capitalization stocks which are frequently
traded in the market and also the index is market-value-weighted.
Procedures of back-testing in this study are the following.

* Trading horizon for the strategies is set to 10 years from the beginning of 1998
to the end of 2007. Unit of trading period is daily or weekly or monthly or
quarterly or yearly depending on strategy. Except for daily-basis, each period
starts from the first trading day of the period and ends the last trading day
during the period.

* If a strategy contains parameters, assign values for the parameters by grid search
method to examine the favorable ranges of parameter values later.

* Generate trading signals based on the historical data of market information

variable(s). All market information variables used in this study are the S&P
500 stock index, return of the index, its trading volume, the change of the
trading volume, the 13-week treasury bill rate, the change of the treasury bill
rate, the CBOE volatility index (VIX), and the change of VIX.

* Simulate trading of the stock index based on trading signals generated by a

strategy utilizing long position only. Assume that we could have traded at the
closing price and cash position wouldn't earn interest.

* Calculate the performance metrics introduced in chapter 4: annualized rate of

return, annualized volatility, Sharpe ratio, proportion of in-the-market periods
pi, and the number of trading during the 10-year time horizon.
 In this study, trading costs are not taken into account to calculate rate of return.
If accurate trading costs which apply for quantitative trading desks or hedge funds
will be available in future study, it will be appropriate to subtract the estimated
trading costs from the original rate of return.

5.2 Examination of Historical Data

In this section, firstly, I present basic statistical properties of market information
variables. Secondly I examine the historical data more in detail to see if there is any
pattern or relationship which could be a source for a strategy's success.

5.2.1 Basic Properties of Market Information Historical Data

For back-tests of strategies in this study, eight market information variables are used.
Half of them are primary variables such as the S&P 500 index, its trading volume,
the 13-week T-bill rate and the VIX.
The other half are secondary variables derived from the primary variables such
as rate of return of the S&P 500 index, change of the trading volume, change of the
T-bill rate and change of the VIX. In figure 5-1, I present historical changes of these
eight variables from 1960 to 2007 (as for VIX, from 1990 to 2007). We can observe
several jump events in history.
In table 5.1, I present basic statistical properties of the eight variables calculated
both from 1960 to 2007 and from 1998 to 2007. The latter is the trading horizon of
back-test. We can observe negative skewness and fat tails for the stock index return
and the T-baill rate change from 1960 to 2007. From 1998 to 2007, the tendency for
the stock index return was weakened to be closer to normal distribution.
As for the trading volume and the change of trading volume, the differences of
kurtosis between the two time spans are considerably large. This is thought to be
caused by the decrease of half-day operation trading days, according to the NYSE's
official records. Lastly, the VIX as well as change of the VIX are positively skewed
and their tails are relatively less fat in contrast to the index return.
 Daily S&P 500 index

Daily Return of S&P 500 index

-"-""' ~------ ~

4 -Daily Chg. of Trading Volume of S&P 500 index

2-

-2
60 1972 1984 1996 2008
Daily 13-Week T-Bill Rate

Daily Chg. of 13-Week T-Bil Rate

0.2

-0.1
.0"S0 1972 1984 1996 2008

Daily CBOE VIX

so0
40
30
20
10

f9 o 1972 1984 1996 2008

Daily Chg. of CBOE VIX

0.6

0.

-0.2 hLMLJ~M
wrrrwovi-r"-InTWiT
7Y''l
I I k_i _
1984 1996 2008

Figure 5-1: Historical Changes of the Market Information Variables

 Statistical Properties of Key Variables (1960-2008, for VIX 1990-2007)
Variable Mean Std. Deviation Maximum Minimum Skewness Kurtosis

Daily S&P 500 Stock Index 416.71 447.87 1565.15 52.20 1.17 2.86

Daily Return of S&P 500 0.0003 0.0093 0.087 -0.23 -1.34 38.39

Daily Trading Volume of S&P 500 401,275,340 704,725,421 6,509,300,000 1,890,000 2.59 10.78

Daily Chg. of Trading Volume 0.0005 0.192 3.31 -3.23 -0.088 21.14

Daily 13-Week T-Bill Rate 5.52 2.74 17.14 0.79 1.14 5.01

Daily Chg. of 13-Week T-Bill Rate 0.00 0.0147 0.195 -0.20 -0.67 22.83

Daily CBOE VIX 18.98 6.38 45.74 9.31 0.97 3.79

Daily Chg. of CBOE VIX 0.0001 0.058 0.50 -0.30 0.64 7.47

Statistical Properties of Key Variables (1998-2007)

Variable Mean Std. Deviation Maximum Minimum Skewness Kurtosis

Daily S&P 500 Stock Index 1211.78 177.60 1565.15 776.76 -0.119 2.30

Daily Return of S&P 500 0.0002 0.0113 0.056 -0.070 -0.039 5.65

Daily Trading Volume of S&P 500 1,552,076,830 806,635,772 6,509,300,000 246,980,000 1.41 5.64

Daily Chg. of Trading Volume 0.0007 0.184 1.18 -1.35 -0.165 13.23

Daily 13-Week T-Bill Rate 3.47 1.66 6.22 0.79 -0.26 1.62

Daily Chg. of 13-Week T-Bill Rate -0.0002 0.0173 0.195 -0.20 -1.45 38.45

Daily CBOE VIX 20.69 6.93 45.74 9.89 0.64 3.18

Daily Chg. of CBOE VIX 0.00 0.058 0.50 -0.30 0.47 6.66
5.2.2 Correlation Analysis between Market Information Vari-
ables

In order to see if there is any pattern or causality between the market information vari-
ables, I executed detailed correlation analysis by calculating auto-correlation/correlation
coefficients between the variables, changing the window size of time series, the unit
of trading period, and the time lag between two time series.
Also I examined their statistical significance by two-sided test at the 5 percent
level and the 1 percent level of significance based on t-statistic of sample estimate.

pPVin-2
Vi _-p 2

where
p = sample estimate of correlation coefficient

n = window size of time series

I present an example of the correlation analysis in figure 5-2. In the example,

dotted lines represent the 5 percent level of significance for auto-correlation coefficients
calculated from time series of window size 252 days with 1 day lag. Dashed-dotted
line represent the 1 percent level of significance.

Counterpart =DailyReturn
5
Window size =252, Lag # =1
U.

0.4
" 0.3 X X XXX X
S0.2
a0)
8 0.1 ---- - -XX
X A,--
XX--
---- X All Periods(A)
0 X
0 X
I I I X
o-0.1
-0.2
196 1974 1985 1996 2007
Time

Figure 5-2: An Example of the Correlation Analysis

 Solid line represents an auto-correlation coefficient calculated from time series
of full window size indicated in the x-axis (time) of the figure. Asterisk symbols
besides a label of the solid line represent significance of the coefficient. One asterisk
represents the 5 percent level of significance and two asterisks for the 1 percent level
of significance.
In appendix A, I present the results of the correlation analysis in detail. For all
analysis, one of the combination of variables was set to the index return. Counterpart
of the combination was set to the index return (auto-correlation), the trading volume,
change of the trading volume, the T-bill rate, change of the T-bill rate, the VIX, and
the change of the VIX. Therefore seven combinations were examined.
For each combination, five kinds of trading period unit (day, week, month, quarter
and year) with two window sizes respectively were applied. Lags of two time series
were changed from one to six in most cases.
From the results shown in appendix A, we can see that mostly correlation coeffi-
cients are between the 5 percent significant level lines and their absolute values are
close to zero. However, in some combination of variables, we can observe with small
absolute values but statistically significant coefficients in shorter time window and/or
in longer time window.

As a summary of the results, I show observed relationships in the long run in table
5.2. We can find significant relationships in all combinations except for correlation
with the trading volume and correlation with the T-bill rate.
Patters in auto-correlation of the index return might be considered as consequences
of over/under-reaction biases which has been reported in a number of literature.
Patterns in correlation with the VIX as well as change of the VIX could be interpreted
that the index return tends to larger after several pessimistic periods and vice versa.
In most cases, directions of correlations are positive. However, as for change of the
T-ball rate, the direction is negative. This coincide with intuition that when risk-free
rate decreases the relative attractiveness of stocks increases.
These patters or relationships observed in historical data could be sources of high
performances for certain strategies so long as the strategies have capabilities to exploit
the patterns. In the following sections, I examine the performances of tested strategies
in relation to these observed patterns in historical data.

Significance of Corrlation Coefficients (1960-2007)

Auto-Correlation Lag = 1 Lag = 2 Lag = 3 Lag = 4 Lag = 5 Lag = 6
Daily ++ --
Weekly --
Monthly ++
Quarterly
Yearly
Correl. w/ Trad. Vol. Lag = 1 Lag = 2 Lag = 3 La = 4 La = 5 Lag = 6
Daily
Weekly
Monthly
Quarterly
Yearly
Correl. w/ Chg. of Trad. Vol. Lag = 1 Lag = 2 La =3 La = 4 Lag =5 Lag= 6
Daily
Weekly +
Monthly
Quarterly
Yearly
Correl, w/ Risk-free rate Lag = 1 Lag =2 Lag= 3 Lag = 4 Lag = 5 Lag =6
Daily
Weekly
Monthly
Quarterly
Yearly
Correl. w/ Chg. of Risk-free rate Lag =1 Lag =2 Lag =3 La =4 Lag =5 Lag =6
Daily --
Weekly - --
Monthly --
Quarterly
Yearly
Significance of Corrlation Coefficients (1990-2007)
Correl. w/ Volatility Index Lag = 1 Lag = 2 Lag = 3 Lag = 4 Lag = 5 Lag = 6
Daily + + + +
Weekly ++
Monthly
Quarterly
Yearly
Correl. w/ Chg. of Volatility Index Lag = 1 La = 2 Lag = 3 Lag = 4 Lag = 5 La = 6
Daily ++
Weekly ++
Monthly
Quarterly + ++
Yearly
+/- ... significant at the 5% level
significant at the 1% level
++/-- ...

Table 5.2: Summary of Correlation Analysis between Market Information Variables

5.3 Performance Analysis of Strategies
I this section, I show the results of the back-testing and examine any possible mecha-
nism for the outcomes in terms of the observed patterns in the historical data of the
market information variables.
Firstly, I explain benchmarks used in this study to compare the performances of
the strategies with. Then I show the results of back-tests by strategies.

5.3.1 Benchmarks

As a basic benchmark for the tested strategies, firstly, I use buy-and-hold (BH) per-
formance of the S&P 500 stock index. This benchmark is used widely in financial
investment industry. I present the performance measures of BH during the time
horizon I used for back-tests in table 5.3.
The table indicates annual performances from 1998 to 2007 and the total per-
formance in the 10 years. Proportion of positive return represents the ratio of the
number of trading days with positive daily return to the number of total trading days
in each year. This measure is used for later analysis.

Buy-and-Hold Strategy
1998 1999 2000 2001 2002
Annualized Returns 0.2667 0.1953 -0.1014 -0.1304 -0.2337
Annualized Volatilities 0.2031 0.1808 0.2218 0.2153 0.2602
Sharpe Ratios 1.3129 1.0802 -0.457 -0.6059 -0.898
Proportion of Positive Returns 0.56 0.51 0.48 0.47 0.44
2003 2004 2005 2006 2007
Annualized Returns 0.2638 0.0899 0.03 0.1362 0,0353
Annualized Volatilities 0.1711 0.1109 0.1027 0.1004 0.1596
Sharpe Ratios 1.5422 0.8112 0.2923 1.3565 0.2212
Proportion of Positive Returns 0.54 0.56 0.56 0.56 0.54
1998-2007
Annualized Returns 0.0423
Annualized Volatilities 0.1802
Sharpe Ratios 0.2346
Proportion of Positive Returns 0.52

Table 5.3: Performance Summary of Buy-and-Hold Strategy

 In addition to the BH benchmark, secondly, I use the Credit Suisse/Tremont hedge
fund indexes as supplementary benchmarks. They contain the composite index, the
Credit Suisse/Tremont Hedge Fund Index, and the sub-indexes provided by type of
hedge funds such as equity market neutral, global macro, event driven, convertible
arbitrage and so on.
The reason to utilize these supplementary indexes is in order to compare the
performance of successful strategies found in the back-testing with the actual perfor-
mances in industry. I present the performance of the Credit Suisse/Tremont hedge
fund indexes in table 5.4.
For the purpose of reference, I present the performance changes of both BH and the
hedge fund composite index in figure 5-3. The hedge fund index had not necessarily
outperformed the BH every year such as in 1998 and 2003. However, the index had
successfully sheltered the downturn from 2000 to 2002 and that led to the average
return in the 10 years more than double of the BH's.

o
I-
I•
nA+
Ceiti.U
U UIV.
j
/Tr + U A Ut I d
%,JU,",l
I I 'rIIU
U•I FU"I
1 : %-.A

U Buy-and-Hold
20% .. . . . . . . . . . . . . . . . . . . . .

10% .
.......... .........-
---- ...............
..............
no/
vru

1998
......

1999 2000
I-M--
0r
......
2001
Bla·~~

2002
*
2003 2004
-................
L .............
2005 2006 2007 1998-2007

-20% .. ...

Figure 5-3: Performance Changes of Buy-and-Hold

and the Credit Suisse/Tremont Hedge Fund Index
 Credit Suisse/Tremont Hedge Fund Indexes
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Credit Suisse/Tremont Hedge Fund Index -0.0036 0.2343 0.0485 0.0442 0.0304 0.1544 0.0964 0.0761 0.1386 0.1256 0.0925
CD Credit Suisse/Tremont Hedge Fund Index Convertible Arbitrage -0.0441 0.1604 0.2564 0.1458 0.0405 0.1290 0.0198 -0.0255 0.1430 0.0517 0.0840
Credit Suisse/Tremont Hedge Fund Index Dedicated Short Bias -0.0600 -0.1422 0.1576 -0.0358 0.1814 -0.3259 -0.0772 0.1700 -0.0661 0.0604 -0.0263
Credit Suisse/Tremont Hedge Fund Index Emerging Markets -0.3766 0.4482 -0.0552 0.0584 0.0736 0.2875 0.1249 0.1739 0.2049 0.2026 0.0909
Credit Suisse/Tremont Hedge Fund Index Equity Market Neutral 0.1331 0.1533 0.1499 0.0931 0.0742 0.0707 0.0648 0.0614 0.1115 0.0927 0.1000
Credit Suisse/Tremont Hedge Fund Index Event Driven -0.0487 0.2226 0.0726 0.1150 0.0016 0.2002 0.1447 0.0895 0.1573 0.1320 0.1057
Credit Suisse/Tremont Hedge Fund Index Distressed -0.0168 0.2218 0.0195 0.2001 -0.0069 0.2512 0.1562 0.1174 0.1558 0.0835 0.1144
Credit Suisse/Tremont Hedge Fund Index Multi-Strategy -0.0898 0.2300 0.1184 0.0679 0.0122 0.1719 0.1404 0.0721 0.1638 0.1682 0.1018
Credit Suisse/Tremont Hedge Fund Index Risk Arbitrage 0.0558 0.1323 0.1469 0.0568 -0.0346 0.0898 0.0545 0.0308 0.0815 0.0877 0.0690
cD Credit Suisse/Tremont Hedge Fund Index Fixed Income Arbitrage -0.0816 0.1211 0.0629 0.0804 0.0575 0.0797 0.0686 0.0063 0.0866 0.0383 0.0506
Credit Suisse/Tremont Hedge Fund Index Global Macro -0.0364 0.0581 0.1167 0.1838 0.1466 0.1799 0.0849 0.0925 0.1353 0.1736 0.1116
Credit Suisse/Tremont Hedge Fund Index Long/Short Equity 0.1718 0.4723 0.0208 -0.0365 -0.0160 0.1727 0.1156 0.0968 0.1438 0.1366 0.1203
Credit Suisse/Tremont Hedge Fund Index Managed Futures 0.2064 -0.0469 0.0424 0.0190 0.1833 0.1413 0.0597 -0.0011 0.0805 0.0601 0.0718
Credit Suisse/Tremont Hedge Fund Index Multi-Strategy 0.0768 0.0938 0.1118 0.0550 0.0631 0.1504 0.0753 0.0754 0.1454 0.1010 0.0944
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.0300 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Credit Suisse/Tremont Hedge Fund Index 0.1232 0.0971 0.1059 0.0227 0.0277 0.0263 0.0341 0.0397 0.0439 0.0503 0.0668
Credit Suisse/Tremont Hedge Fund Index Convertible Arbitrage 0.0839 0.0209 0.0425 0.0252 0.0507 0.0400 0.0263 0.0488 0.0212 0.0421 0.0486
0 Credit Suisse/Tremont Hedge Fund Index Dedicated Short Bias 0.3110 0.1476 0.2517 0.1659 0.1536 0.0925 0.1413 0.1260 0.1236 0.1485 0.1771
Credit Suisse/Tremont Hedge Fund Index Emerging Markets 0.2646 0.1952 0.1634 0.1081 0.0806 0.0543 0.0647 0.0703 0.0929 0.0788 0.1423
Credit Suisse/Tremont Hedge Fund Index Equity Market Neutral 0.0341 0.0193 0.0225 0.0217 0.0186 0.0135 0.0223 0.0181 0.0204 0.0193 0.0225
Credit Suisse/Tremont Hedge Fund Index Event Driven 0.1383 0.0393 0.0336 0.0337 0.0566 0.0217 0.0342 0.0377 0.0325 0.0540 0.0592
CD Credit Suisse/Tremont Hedge Fund Index Distressed 0.1464 0.0391 0.0336 0.0352 0.0775 0.0286 0.0279 0.0236 0.0306 0.0421 0.0624
W1
CI)
CD Credit Suisse/Tremont Hedge Fund Index Multi-Strategy 0.1418 0.0525 0.0472 0.0386 0.0475 0.0193 0.0420 0.0520 0.0367 0.0663 0.0648
Credit Suisse/Tremont Hedge Fund Index Risk Arbitrage 0.0883 0.0526 0.0337 0.0406 0.0385 0.0313 0.0291 0.0212 0.0306 0.0445 0.0451
Credit Suisse/Tremont Hedge Fund Index Fixed Income Arbitrage 0.0873 0.0210 0.0116 0.0192 0.0405 0.0224 0.0249 0.0233 0.0216 0.0357 0.0385
0 Credit Suisse/Tremont Hedge Fund Index Global Macro 0.1883 0.1306 0.1090 0.0360 0.0263 0.0412 0.0303 0.0301 0.0424 0.0429 0.0840
Credit Suisse/Tremont Hedge Fund Index Long/Short Equity 0.1658 0.1503 0.1815 0.0422 0.0410 0.0417 0.0534 0.0621 0.0666 0.0622 0.1033
Credit Suisse/Tremont Hedge Fund Index Managed Futures 0.1310 0.0847 0.1206 0.1341 0.1463 0.1375 0.1339 0.1060 0.0927 0.1348 0.1208
Credit Suisse/Tremont Hedge Fund Index Multi-Strategy 0.0620 0.0437 0.0402 0.0221 0.0245 0.0227 0.0245 0.0406 0.0338 0.0478 0.0377
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
0
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Credit Suisse/Tremont Hedge Fund Index -0.35 2.01 0.09 0.21 -0.32 4.38 1.67 0.92 2.26 1.71 0.86
Credit Suisse/Tremont Hedge Fund Index Convertible Arbitrage -0.99 5.80 5.11 4.23 0.02 2.24 -0.75 -1.33 4.89 0.29 1.01
Credit Suisse/Tremont Hedge Fund Index Dedicated Short Bias -0.32 -1.23 0.47 -0.45 0.92 -3.95 -0.83 1.04 -0.85 0.14 -0.35
Credit Suisse/Tremont Hedge Fund Index Emerging Markets -1.57 2.09 -0.58 0.18 0.42 4.57 1.32 1.91 1.78 2.07 0.39
Credit Suisse/Tremont Hedge Fund Index Equity Market Neutral 2.75 5.92 4.92 2.47 1.87 2.31 1.14 1.21 3.54 2.76 2.88
Credit Suisse/Tremont Hedge Fund Index Event Driven -0.64 4.66 0.99 2.24 -0.67 7.42 3.08 1.33 3.63 1.71 1.19
Credit Suisse/Tremont Hedge Fund Index Distressed -0.38 4.67 -0.59 4.56 -0.60 7.41 4.18 3.31 3.80 1.05 1.27
Credit Suisse/Tremont Hedge Fund index Multi-Strategy -0.91 3.63 1.68 0.74 -0.57 6.87 2.40 0.63 3.39 1.94 1.03
Credit Suisse/Tremont Hedge Fund Index Risk Arbitrage 0.19 1.77 3.19 0.43 -1.92 1.61 0.52 -0.41 1.37 1.09 0.75
CD Credit Suisse/Tremont Hedge Fund Index Fixed Income Arbitrage -1.39 3.89 2.03 2.13 0.45 1.80 1.17 -1.42 2.19 -0.03 0.40
CI Credit Suisse/Tremont Hedge Fund Index Global Macro -0.40 0.14 0.71 4.02 4.07 3.41 1.50 1.77 2.26 3.13 0.91
Credit Suisse/Tremont Hedge Fund Index Long/Short Equity 0.80 2.88 -0.10 -1.80 -1.35 3.19 1.43 0.92 1.57 1.56 0.83
Credit Suisse/Tremont Hedge Fund Index Managed Futures 1.28 -1.02 0.03 -0.15 0.98 0.74 0.15 -0.38 0.44 0.15 0.30
Credit Suisse/Tremont Hedge Fund Index Multi-Strategy 0.60 1.25 1.80 0.70 0.97 4.90 1.47 0.89 3.14 1.29 1.57
Buy-and-Hold 1.31 1.08 -0.46 -0.61 -0.90 1.54 0.81 0.29 1.36 0.22 0.23
 Lastly, in order to evaluate the quality of generated trading signals from a different
point of view, I examined the back-test performances of randomly generated trading
signals. The random signals were generated in daily-basis by fixing their daily in-the-
market probability Prob(sigt = In) to 0.1, 0.5, 0.9, 0.99 respectively. I present rate
of return distributions of the randomly generated trading signals in figure 5-4 and
present pin distribution of them in figure 5-5.
Summary of statistics is shown in table 5.5. It is indicated that by increasing
Prob(sigt = In) to 1, average return comes closer to return of the buy-and-hold

(TBH=4.23%). Also it is shown that probability that sample return is greater than
the BH, Prob(r > rBH), is coming near to the proportion of positive daily index
return to all trading days in the 10-year horizon (0.52).

Performances of Randomly Generated Trading Signals

Randomly Generated Mean of Std. Dev. of
Signals with respect to Number of AnnualizedAnnualized Prob(r>rnH) Mean of pi,
Prob(sig, = In) Returns Returns
Prob(sig, - In) = 0.1 1000 0.52% 1.71% 0.019 0.100
Prob(sigt = In) = 0.5 1000 2.16% 2.88% 0.229 0.500
3 8 8
Prob(sig, = In) = 0.9 1000 .7 % 1.7 % 0.418 0.900
Prob(sig, = In) = 0.99 1000 4,16% 0.58% 0.451 0.990

Table 5.5: Performance Summary of Randomly Generated Trading Signals

(1998-2007)
 I
Prob(lN
Mean= !
Std De
Prob(r:

0,06 0. aI;1

IlU r Iqfi
=0.9 Prc
0378 Me
=00178 SPr
)= 0418 Prc

i l- O 2

Figure 5-4: Average Annualized Rate of Return Distributions of Randomly

Generated Signals (1998-2007)

Iu I.. ... . I -' 1

Pr -rOD(IN) =
MI Mean= 0
St 120o Std. Dyev.

160

o60

60

40o

20

AL

iso
Prob(I IProb(IN) =0 99 lO.
,
c

Mean 50o-Mean= C
Std 0 Std. Dev
140

120

100

40

20

0 I I S i
0-.75 0.8 0.02 0.125 018. 2 0 99 0.918

Figure 5-5: Average pin Distributions of Randomly Generated Signals (1998-2007)

5.3.2 Contrarian and Momentum

I back-tested contrarian and momentum strategies by changing the unit of trading

period in daily, weekly, monthly, quarterly and yearly. The resulting return of all
strategies are shown in figure 5-6. It shows that contrarian is better than momentum
for shorter units of trading period and momentum beats contrarian for longer units
of period except for quarterly.

-4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6%9 7%

Contra rian(d ily) P-

C ntrari n(we kly) ýj
Cor traria (mon h
Con rarian quart rly)
C ontra! an NFr
I om e r t ( h

Mon entur (mon hly)

Momentum quart rly)
Mmentim(ye rly)
Bu4-and- old

Figure 5-6: Annualized Returns of Contrarian and Momei Ltum Strategies

(1998-2007)

From the viewpoint of the correlation analysis in section 5.2.2, high performances
of Contrarian(weekly) can be attributed to the significant negative auto-correlation
of the weekly stock index return with lag of one indicated in table 5.2. However these
long-run auto-correlations cannot explain the high performance of Contrarian(daily),
because the long-run auto-correlation with lag of one in daily basis is significant in
positive direction.
When we look into the detailed analysis in appendix A, we can find that during the
trading horizon, from 1998 to 2007, lag-1 auto-correlation of daily return was moving
toward negative direction in figure A-2. It is considered that this mid-run trend shift
supported the Contrarian(daily) strategy. Similarly, as it is indicated in figure A-10,
mid-run trend shift of yearly auto-correlation with lag of one toward the positive
direction after 2000 explains well the high performance of Momentum(yearly).
As a representative of contrarian and momentum strategies, I present the perfor-
mance of the best strategy Coritrarian(t(weekly)in comparison with the BH. Figure 5-7
shows change of the best strategy performance and table 5.6 indicates summary of
performance measures. Detailed annual performances of contrarian and momentum
strategies are presented in appendix B.

40%
* Contrarian(weekly I)
...
-anoL
"'" Buy-and-Hold

20%

10%
0
0%
U]
::•,::i
:$:
.L L
1998 1999 2000 2002 2003 2004 2005 2006 2007 1998-2!007
-10%

-20%

-30% -

Figure 5-7: Performance Change of the Best Contrarian and Momentum Strategy:
Contrarian(weekly)

1998-2007 Contrarian(weekly) Buy-and-Hold

Annualized Return 7.53% 4.23%
Annualized Volatility 13.76% 18.02%
Sharpe Ratio 0.628 0.235
Average pin 0.47 1
Average NumOfTrade 26.5 N/A

Table 5.6: Performance Summary of the Best Contrarian and Momentum Strategy:
Contrarian(weekly)

5.3.3 Contrarian and Momentum on an Arbitrary Market

Information Variable

Contrarian and momentum strategies based on other market information variables

than the stock index return were examined as well. The market information variables
I used are the change of the trading volurne, the change of risk-free rate, and the
change of the volatility index.
The resulting annualized rate of returns of the strategies are shown in figure 5-8,
figure 5-9 and figure 5-10.

-4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8%

.. ....
1
Contrarian(Chg. of T 'f.d.VO "daJIY)
Contrarian(Chg. 0 Tra dtVal., ~ee lly) , ."'"
1 I I
Cantrarian(Chg. of rad .~al., n~ont~ly)

[ql
.....
I
Contrarian(Chg. of T ad.V arte Iy)
I
'"

Contrarian(Chg. f Tra .v " ",

Momentum(Chg. of Tr d.Vo ., da Iy)

Momentum(Chg.o Tra
Mamentum(Chg. of rad .\01., n,ontt Iy)
Mamentum(Chg. of T ad.V I., ql arte Iy)
Momentum(Chg. fTratvol. yea Iy)
uy-a hd-H :>Id .;
.. ... J
r I

Figure 5-8: Annualized Returns of Contrarian and l\Jlornenturn Strategies

on Change of Trading Volurne (1998-2007)

-3% -2% -1% 0% 1% 2% 3% 4% 5% 6%

Contrarian(Chg. a Rf-R t• • •
Cantrarian(Chg. of R -Rat Wee~IY)
Cantrarian(Chg. of Rf- ate, ontply)
Contrarian(Chg. of Rf- ate, uart~IY)
Contrarian(Chg. of f-Ra ,ye,ly)
Momentum(Chg. 0 Rf-R te, d~i1Y)
Momentum(Chg. of R -Rat , wee~IY)
Momentum(Chg. of Rf- ate, onthly)
!
Momentum(Chg. of Rf- ate, uartEtly)
i
Mamentum(Chg. of f-Ra , yeajrly)
Buy- nd-~old

Figure 5-9: Annualized Returns of Contrarian and l'vlolnentuIll Strategies

on Change of Risk-free Rate (1998-2007)

80
 -5%-4%-3%-2%-1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

Contra ian( h
Contraria (Ch .i
Contrarian Chg. o
Contrarian(Chg. f
Contrarii n(C g
Moment • m( h
Momenturl(Chg.
Momentum Chg. o
Momentum( hg. f
Momentu (C g

Figure 5-10: Annualized Returns of Contrarian and Momentum Strategies

on Change of Volatility Index (1998-2007)

As for the strategies based on the change of the stock trading volume, weekly
trading worked well for contrarian and so did yearly trading for momentum. Looking
into figure A-23 and figure A-30 in appendix A to understand the reason for their
successes, it is shown that there were trend changes which affected favorably to both
strategies during the trading horizon.
Weekly change of the trading volume is positively correlated with the stock return
with one-period lag in the long term, however the relationship reversed significantly
in 2002 and that supported the contrarian strategy. In fact, this weekly contrarian
on change of the trading volume outperformed the BH only during market downturn
from 2000 to 2002 as indicated in its detailed performance in appendix B.
Yearly change of the trading volume had been negatively correlated with the index
return. In mid 90's there was a shift toward positive correlation and it supported the
yearly momentum strategy.
As for the strategies based on the change of the risk-free rate, only the daily mo-
mentum outperformed the BH. In the long run, change of risk-free rate is negatively
correlated with one-period lagged stock return as we saw in section 5.2.2. However
again, a trend shift can be observed to opposite direction in figure A-42 which sup-
ported the strategy.
As for the strategies based on the change of the volatility index, momentum strate-
gies outperformed contrarian except for monthly basis. As indicated in section 5.2.2,
change of the VIX has significant positive correlation with the stock return with
one-period lag. That can explain the performances of the momentum strategies.
For reference, I present performances of the best strategies from the three strategy
classes in comparison with the BH in figure 5-11 and in table 5.7. Also detailed an-
nual performances of contrarian and momentum strategies based on the three market
information variables are presented in appendix B.

mContrarian(Chg.of Trad.Vol., weekly)

'ha f of late dail I
30% t .-.. --.-..--11,
',--
........
...
.......... ..........
................. SIKAmentumir

U Momentum(Chg.of VIX, weekly)

20% U Buy-and-Hold

E l..........
I
...
10%

0% -"-rn ~
n-
- I
16Ii
1998 1999 2004 200. 2003 2004 2005 2006 2007 1998-2007
-10%
-20%
...--------
-30% -.....-.-.---.-----.--- -

Figure 5-11: Performance Changes of the Best Contrarian and Momentum

Strategies by Market Information Variable: Contrarian(Chg.ofTrad. Vol., weekly) ,
Momentum(Chg. of Rf Rate, daily) and Momentum(Chg. of VIX, weekly)

Contrarian(Chg.of Momentum(Chg.of Momentum(Chg.of

1Trad. Vol., weekly) Rf Rate, daily) VIX, weekly) Buy-and-Hold

Annualized Return 7.72% 5.97% 8.21% 4.23%

Annualized Volatility 13.26% 13.55% 13.45% 18.02%
Sharpe Ratio 0.644 0.498 0.684 0.235
Average pin 0.49 0.61 0.48 1
Average NumOffrade 33.2 110.9 29.6 N/A

Table 5.7: Performance Summary of the Best Contrarian and Momentum Strategies
by Market Information Variable: Contrarian(Chgy.ofTrad. Vol., weekly) ,
Momentum(Chg.of Rf Rate, daily) and Momentum(C'hg.of VIX, weekly)
5.3.4 Moving Average Convergence Divergence
Moving Average Convergence Divergence strategy in this study has three parameters
which are size of short time window, size of long time window, and threshold. There-
fore I executed grid-search based back-tests by changing short window size from 5 days
to 50 days.by 5 days, long window size from 100 to 300 by 20 days, and threshold
from 0% to 10% by 1%. The number of total combinations of parameters is 1210.
I show returns of the top 20 strategies from 1210 in figure 5-12 and averaged
returns with respect to window size parameters in 5-13. It is shown that larger size
windows for both short window and long window tend to generate higher returns and
that is reflected in the top 20 strategies.
It is considered that smoothing small ripples with larger time windows is assuring
the performance of MACD which pursues underlying trends by its nature. Also among
the top 20 strategies, there is no strategy with threshold smaller than 2% and this
could be for the same reason.
i
1% 2% 3% 4% 5% 6% 7% 8% 9%

MACD(25, 280, 0.02) _400-0400 mm WO

ONO
MACD(20, 240, 0.04)
MACD(15, 260, 0.04) ONNW*NN
"mom*
MACD(30, 300, 0.02) woo" "pow" mom"
MACD(20, 200, 0.06) woo$" WWWWN ON"
woo" MNO ON"
MACD(50, 260, 0.06) -mum N---- moo"
ONO" WNW
INo "po
MACD(25, 300, 0.02)
MACD(45, 160, 0.02) ON" mom
MACD(20, 300, 0.02) =No na-
PNO
OWNO
wo-
mm11~11
WU-
MACD(15, 220, 0.06) N00
MACD(40, 280, 0.02) ONWWU-
NOWW"00
MACD(50, 240, 0.06) pmma OU-
MACD(20, 260, 0.02) -m"Wmmf~ WA60
NllYIIWAWA
MACD(45, 280, 0.04) 4040 "mom"
MACD(50, 300, 0.06) pmm woo" Now
04*
MACD(25, 220, 0.02)
MACD(25, 240, 0.04)
ONr~~Y pow MWO
MACD(45, 220, 0.04) emm OWN
MACD(S0, 220, 0.06) pmme NXOOM
MACD(35. 240. 0.04) 0N00
Buy-and-Hold OWAW"n j f
................................... ......

Figure 5-12: Annualized Returns of Top 20 Moving Average Convergence

Divergence Strategies (1998-2007)

Secondly, to see the sensitivity of MACD, I examined the performances in a neigh-

 0% 1% 2% 3% 4% 5% 6%
ShortWindow = 5
ShortWindow = 10
ShortWindow = 15
ShortWindow = 20
ShortWindow = 25
ShortWindow =30
ShortWindow = 35
ShortWindow = 40
ShortWindow =45
ShortWindow = 50
Long Window = 100
LongWindow = 120
LongWindow= 140
LongWindow = 160
LongWindow= 180
LongWindow = 200
LongWindow = 220
LongWindow = 240
LongWindow = 260
LongWindow= 280
LongWindow = 300
Buy-and-Hold

Figure 5-13: Average Annualized Returns by Parameters of Moving Average

Convergence Divergence Strategies (1998-2007)

,uu

Mean =0.0396
Std. Dev. =0.0269

0.10,1

Figure 5-14: Average Annualized Return Distribution (left) and Average pi,n
Distribution (right) of the 1210 Moving Average Convergence Divergence Strategies
(1998-2007)
borhood of the best MACD strategy inside the grid. The result is shown in table 5.8.
It is indicated that all neighbors outperformed the BH and MACD could be a robust
strategy in terms of relatively small changes of parameters.
As for the properties of generated signals from MACD, I show the return distri-
bution and the pi, distribution of the 1210 strategies in figure 5-14. For reference,
206 strategies out of the 1210 turned out to be the buy-and-hold. Comparing to the
statistics from random signals in table 5.5, MACD has a higher Prob(r > rBH) in
relation to its average Pin.

Returns in Neighborhood of MACD(25, 280, 0.02)

with respect to
Short Window Size
MACD(20, 280, 0.02) 6.63%
MACD(25, 280, 0.02) 8.37%
MACD(30, 280, 0.02) 5.88%
Long Window Size
MACD(25, 260, 0.02) 6.92%
MACD(25, 280, 0.02) 8.37%
MACD(25, 300, 0.02) 7.79%
Threshold
MACD(25, 280, 0.00) 7.47%
MACD(25, 280, 0.02) 8.37%
MACD(25, 280, 0.04) 7.44%

Table 5.8: Average Annualized Returns in Neighborhood of the Best Moving

Average Convergence Divergence Strategy: MACD(25, 280, 0.02)

Lastly I present the performance of the best MACD strategy MACD(25, 280,
0.02) in figure 5-15 and in table 5.9. The more detailed performances of MACD
strategies are shown in appendix B.
Against the historical data of the S&P 500 index from 1998 to 2007, the best
MACD strategy MA CD(25, 280, 0.02) successfully sheltered from the downturn from
2000 to 2002 because of its capability to deal with longer cycle trend. This is indicated
also from the small average number of trade for this strategy (0.2). It means this
strategy switched its index-holding position only a few times in the 10 years.
On the other hand, by the nature of MACD, it was not so quick to respond to
the beginning of the downturn in 2000 as well as the beginning of the bull market in
2003 as shown in figure 5-15.
 .......
. ...
.. ...
..
..
...
......
... ...
..
..... ......
.....
...
U MACD(25, 280, 0.02)
20% - SBuy-and-Hold j
10%

0%
....i...

....
.......
........ ....
..........
......................
..xl~....l.~-.~~.....................1..
. pi
.......
.. I

1998 1999 2 2 2003 2004 2005 2006 2007 1998-20071

-10%

-20%

.... . ........................................ ........

I........................................ . . . . ...........
. . ....................
I..". . . . . . . . . . . . . . . . . . . . . . . . .......

Figure 5-15: Performance Change of the Best Moving Average Convergence

Divergence Strategy: MACD(25, 280, 0.02)

1998-2007 MACD(25, 280, 0.02) Buy-and-Hold

Annualized Return 8.37% 4.23%
Annualized Volatility 13.53% 18.02%
Sharpe Ratio 0.614 0.235
Average pin, 0.74 1
Average NumOfTrade 0.2 N/A

Table 5.9: Performance Summary of the Best Moving Average Convergence

Divergence Strategy: MACD(25, 280, 0.02)

5.3.5 Trend-Based Regression

As for the trend-based regression (TBR) strategy which has three parameters, I ex-
ecuted back-tests by grid-search method as well. The time window size was changed
from 2 days to 10 days by 1 day, the number of recent trend series was changed from
10 to 100 by 10, and threshold was changed from 0 to 1 by 0.1. The total number of
combinations was 990.
The top 20 returns are shown in figure 5-16 and the averaged returns with re-
spect to the window size and the number of trend series are shown in figure 5-17.
Both figures are consistent in a sense that the top 20 have combinations of better
parameters indicated in the by-parameter analysis. However it is not obvious that
why both smaller and larger numbers of the trend series are resulting relatively better
performances in common.
Looking into a neighborhood of the best trend-based regression Trend-based Re-
gression(8, 100, 0.5) in table 5.10, it is shown that small change of parameters affects
 0% 1% 2% 3% 4% 5% 6% 7% 8%

Trend-based Regression(8, 100, 0.5) *awl mAAw ma* ma" aw

Trend-based Regression(6, 60, 0.2) WaW wow Wma* we
Trend-based Regression(6, 60, 0.3) -4 OWN ma"ma Ow
Trend-based Regression(6, 90, 0.3) ma*
ao OWN maomao" maoma#0
Trend-based Regression(6, 100, 0.2) ma"
Trend-based Regression(8, 60, 0.4) aon mawNAma Now ma00a
Trend-based Regression(6, 100, 0.4) NOO MaO
mao
ma
ma0
m"af
mawmawup p NO"d
Trend-based Regression(8, 100, 0.8) a; . Nma maW
Trend-based Regression(10, 40, 0) No" ao aw I
Trend-based Regression(7, 30, 0.5) Ama aON 0
Trend-based Regression(9, 60, 0.2) "am aow00ma
Trend-based Regression(4, 20, 0.9) "No
Trend-based Regression(8, 30, 1) -00"W Now
Trend-based Regression(5, 40, 0.1) am~ O"Np) maN ma%
Trend-based Regression(2, 70, 0) aN""maO"WaN mWaWe
Trend-based Regression(7, 30, 0.1) OIOM-M ma6* Ow
Trend-based Regression(6, 30, 0.4) ao "ma wwwma" maNOw
Trend-based Regression(3, 60, 0.1) -· ma"
Trend-based Regression(9, 60, 0.1)
Trend-based Regression(10, 20, 0.2) a0*
maw Ui
a a
Buy-and-Hold 0
r
~,,,

Figure 5-16: Annualized Returns of Top 20 Trend-Based Regression Strategies

(1998-2007)

0%1% 1% 2% 2% 3% 3% 4% 4% 5%
- 4 1. 1¾ . ...... ___
1- .
1.1', .. ....

W=2
W=3
-Woo
W=4 wows
W=5
W=6 i
W=7
W=8 a-p·-S6
W=9
W= 10
)*Wow"
*Woo"
K= 10
K = 20 WOO*"
-1
K = 30 Vw~
K= 40 a"sWo ma~'
K= 50 WaOW
K = 60
K=70
K=80 NMa-
K = 90 a wma
K =100 ,*woo"
Buy-and-Hold I
·I
human
aNOiYL~"*"~"~
.................
.T.................
.. ............................ aww. .

Figure 5-17: Average Annualized Returns by Parameters of Trend-Based Regression

Strategies (1998-2007)
the performances tremendously. The trend-based regression strategy is utilizing a
linear modeling method. Nevertheless, its behavior is not simple when applied to the
real market data.
Returns in Neighborhood of Trend-based
Regression(8, 100, 0.5) with respect to
Window Size
TBR(7, 100, 0.5) 5.25%
TBR(8, 100, 0.5) 7.59%
TBR(9, 100, 0.5) 3.56%
Number of Trend Series
TBR(8, 90, 0.5) 0.81%
TBR(8, 100, 0.5) 7.59%
Threshold
TBR(8, 100, 0.4) 3.00%
TBR(8, 100, 0.5) 7.59%
TBR(8, 100, 0.6) 1.10%

Table 5.10: Average Annualized Returns in Neighborhood of the Best Trend-Based

Regression Strategy: Trend-based Regression(8, 100, 0.5)

Next I show the average return distribution and the pin distribution of the 990
trend-based regression strategies in figure 5-18. The statistics of performances are
not quite different from random signals.

1zo ""
.. 1
Menn l=nl17 I\
c
StP
100 Pro 300

250
80

200
60

150

40
100

20
50

O
-0.00 0.08 0 0.7

Figure 5-18: Average Annualized Return Distribution (left) and Average pin
Distributions (right) of the 990 Trend-Based Regression Strategies (1998-2007)

Lastly I present the performance of the best trend-based strategy in figure 5-19
and in table 5.11. Also detailed performances of trend-based strategies are shown in
appendix B.
30%
mTrend-based Regression(8, 100, 0.5)
20% Buy-and-Hold

10%

0%

-10%
1998
t

1999
Ib 2000 2001
)H

2003
.+

2004 2005 2006

.1. ....
2007
L
1998-2007

-20% -

-30%

Figure 5-19: Performance Change of the Best Trend-Based Regression Strategy:

Trend-based Regression(8, 100, 0.5)

1998-2007 Trend-based Regression Buy-and-Hold

(8,100, 0.5)
Annualized Return 7.59% 4.23%
Annualized Volatility 12.29% 18.02%
Sharpe Ratio 0.606 0.235
Average pi, 0.45 1
Average NumOfTrade 12 N/A

Table 5.11: Performance Summary of the Best Trend-Based Regression Strategy:

Trend-based Regression(8, 100, 0.5)

89
5.3.6 Trend-Based Regression with Multiple Market Infor-
mation Variables

In contrast to the trend-based strategy in the previous section, I also examined the
trend-based regression strategy with multiple market information variables. I tested
the following three cases.
The first case is utilizing two variables, the index return and the change of the
trading volume, with the widow sizes of two variables equal. The second is the same
as the first except that the window size of the index return is double of the change
of trading volume.
The third case is studying exhaustive combinations from four variables, the index
return, the change of the trading volume, the change of the risk-free rate, and the
change of the volatility index, by fixing the window sizes of all variables to one period.
I show the results of the three cases in the order.

As the first case, I examined the trend-based regression with two variables, the
index return and the change of the trading volume by grid-search. The size of time
window for the both variables was changed from 2 days to 10 days by 1 day. The
number of recent trend series was changed from 10 to 100 by 10 and threshold was
changed from 0 to 1 by 0.1. The total combinations are 990.
The returns of top 20 strategies and the returns by parameter (window size and
number of trend series) are shown in figure 5-20 and in figure 5-21 respectively. They
show that the strategies with the window size of around 6 days and the trend series
number of around 20 resulted in good performances.
Comparing to the result of previous section, it seems that the adding the change
of trading volume with the same window size as the index return did not contribute
to performance improvement. This is indicated in the several negative returns in the
by-parameter analysis which were not observed in the previous section.
Next I studied a neighborhood of the best strategy Trend-based Regress(Index
Return, 8; Chg of Trad. Vol., 8; 20, 0.5) as shown in table5.12. It is indicated that
 0% 1% 2% 3% 4% 5% 6% 7%

Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.5)

mm Oem
UlR
S
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 6; 10, 0.9) S
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.2) momw"" [p
S
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.3) ow SM
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.4) a
6; 10, 1) S 0
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., mom mom
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.6) m mom
mms OWN S 0
am
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.7) now mom SN
Chg of Trad.Vol., 6; 10, 0.8) mo
Trend-based Regress(Index Return, 6; No"
Sm
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 1) mom
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 6; 20, 1) Raw No

Trend-based Regress(Index Return, 9; Chg of Trad.Vol., 9; 20, 0.8) "ma nowe S

So
mo
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.1) rsee
SWN So an
mo
0.7) So
Trend-based Regress(Index Return, 9; Chg of Trad.Vol., 9; 20,
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 6; 10, 0) SMO Nam
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.9) jme So
Trend-based Regress(Index Return, 8; Chg of Trad.Vol., 8; 20, 0.8) *n
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 6; 20, 0.7) SOM OX
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 6; 10, 0.6) a
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 6; 10, 0.7) i O"a
i [1
Buy-and-Hold -...."Prl
- I -... .1
..............
11-.......
........ 1
...
1 11 -11 -,.......
....

Figure 5-20: Annualized Returns of Top 20 Trend-Based Regression Strategies with

Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1) (1998-2007)

-4% -3% -2% -1% 0% 1% 2% 3% 4% 5%

·-·-- ·---··· ··-·-···-

Figure 5-21: Average Annualized Returns by Parameters of Trend-Based Regression

Strategies with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1) (1998-2007)
except for the threshold, change of parameters deteriorate the performances. This
instability is consistent with the result of the previous section.

Returns in Neighborhood of TBR(Index Return, 8;

Chg of Trad. Vol., 8; 20, 0.5) with respect to
Window Size
TBR(Index Return, 7; Chg
of Trad. Vol., 7; 20, 0.5) 2.89%
TBR(Index Return, 8; Chg
of Trad.Vol., 8; 20, 0.5) 6.53%
TBR(Index Return, 9; Chg
of Trad.Vol., 9; 20, 0.5) 5.26%
Number of Trend Series
TBR(Index Return, 8; Chg
of Trad.Vol., 8; 10, 0.5) -3.13%
TBR(Index Return, 8; Chg
of Trad. Vol., 8; 20, 0.5) 6.53%
TBR(Index Return, 8; Chg
of Trad.Vol., 8; 30, 0.5) 1.02 %
Threshold
TBR(Index Return, 8; Chg
of Trad.Vol., 8; 20, 0.4) 6
.39%
TBR(Index Return, 8; Chg
of Trad.Vol., 8; 20, 0.5) 6.53%
TBR(Index Return, 8; Chg
of Trad. Vol., 8; 20, 0.6) 6.15%

Table 5.12: Average Annualized Returns in Neighborhood of the Best Trend-Based

Regression Strategy with Index Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1):
Trend-based Regress(Index Return, 8; Chg of Trad. Vol., 8; 20, 0.5)

Next I show the average return distribution and the pi, distribution of the 990
trend-based regression strategies with index return and change of trading volume
(W1 : W2 = 1 : 1) in figure 5-22. The statistics of performances are not quite different
from random signals.

As for the second case, I also examined the strategy with double window size for
the index return by grid-search changing values of parameters. The window size was
changed from 4 days to 16 days by 2 days for the index return (from 2 days to 8 days
by 1 day for the change of trading volume). Number of trend series and threshold
were changed from 10 to 100 by 10 and from 0 to 1 by 0.1 respectively. The total
number of combinations is 770.
The result for the top 20 strategies and for by-parameter are shown in figure 5-
 Vol (iV:W 1 1
MewlTrad. w/Trad Vol(V W 1 1
Mean =-0.0038
120o Std 3oo Std Dev=
Prot
100 - 250-

80 200

60 150

40 100

20 50

0 * --
-~08 -- 008 0.44 0.46 0.54 056 005 0
0,54 056 058

Figure 5-22: Average Annualized Return Distribution (left) and Average pi,
Distributions (right) of the 990 Trend-Based Regression Strategies with Index
Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1) (1998-2007)

23 and figure 5-24. It is shown that the shorter window size and larger number of
trend series contributed to the better performances. The level of the top 20 returns
are improved from the single variable trend-based regression in contrast to the 1
to 1 window sizes case which deteriorated the performances. It suggests that the
combination of market information variables has some non-linear effects and the right
mix in terms of proportion between time series sizes could improve performances.
Looking into a neighborhood of the best strategy Trend-based Regress(Index Re-
turn, 4; Chg of Trad. Vol., 2; 80, 0.4) in table 5.13, it is shown that the strategy is
still unstable in change of parameters, even though the returns in the neighborhood
are larger than the BH.
Next I show the average return distribution and the pin distribution of the 770
trend-based regression strategies with index return and chg. of trading volume (W1 :
W2 = 2 : 1) in figure 5-22. It is shown that the statistics of performances are improved
in contrast to random signals as well as to the single variable trend-based regression.
For reference of the first case and the second case, I present the performances of
the best strategy in both cases in figure 5-26 and in table 5.14. On contrary to the
performance from contrarian/momentum strategy and MACD strategy, the perfor-
mances from the trend-based strategies with multiple variables in both cases did not
align with the BH annual basis. They move up and down of the BH without any
 Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 80, 0.4)
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 80, 0.3)
0%

-
amom
2% 4% 6% 8% 10% 12%

umom P-oo
m-
momy
mome p--1-- U--
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 80, 0.2)
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 70, 0) mome mo-
m-

mom
P- m
U-o" U-
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 100, 0) p- I

moms
wo
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 3; 6, 30, 0.4) moo" wo
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 100, 0.1) m- U-
emow
0
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 80, 0.1) OO-Npo-
mo-"
No-
pa- mo-
O- S
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 80, 0) po-
"O- U-
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 50, 0.1) U-O "mm
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 40,0.2) U-O mom
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 70, 0.1) wo- W*W M*
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 40, 0.3) 00-0
'M-o U-0 mom P- U-
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 3; 6, 30, 0.3) I -Wwo- U-
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 3; 100, 0.3) mo
ro-m
mo-
wo- U-M
"m-
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 3; 100, 0.7) mo-
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 40, 0) po-
V-
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 50, 0) POM*
Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 70, 0.2) wo-
w-
Trend-based Regress(Index Return, 6; Chg of Trad.Vol., 3; 70, 0.5)
Buv-and-Hold

Figure 5-23: Annualized Returns of Top 20 Trend-Based Regression Strategies with

Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1) (1998-2007)

-1% 0% 1% 2% 3% 4% 5% 6% 7%

(Wi,
(Wi,
(Wi,
(W1, V
(Wi,'4
(W1,$
(W1,'4

Figure 5-24: Average Annualized Returns by Parameters of Trend-Based Regression

Strategies with Index Return and Chg. of Trad. Vol. (W
1 : VW2 = 2 : 1) (1998-2007)
 Returns in Neighborhood of TBR(Index Return, 4;
Chg of Trad. Vol., 2; 80, 0.4) with respect to
Window Size
TBR(Index Return, 4; Chg
of Trad.Vol., 2; 80, 0.4) 11.75%
TBR(Index Return, 6; Chg
6
of Trad. Vol., 3; 80, 0.4) .55%
Number of Trend Series
TBR(Index Return, 4; Chg
of Trad.Vol., 2; 70, 0.4) 5.84%
TBR(Index Return, 4; Chg
of Trad.Vol., 2; 80, 0.4) 11.75%
TBR(Index Return, 4; Chg
of Trad.Vol., 2; 90, 0.4) 6.95%
Threshold
TBR(Index Return, 4; Chg
of Trad.Vol., 2; 80, 0.3) 11.72%
TBR(Index Return, 4; Chg
of Trad.Vol., 2; 80, 0.4) 11.75%
TBR(Index Return, 4; Chg
of Trad.Vol., 2; 80, 0.5) 9.26%

Table 5.13: Average Annualized Returns in Neighborhood of the Best Trend-Based

Regression Strategy with Index Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1):
Trend-based Regress(Index Return, 4; Chg of Trad. Vol., 2; 80, 0.4)

VU 1zU .
wl/Trad. Vol. (
Mean = 0.498
. Std. Dev. = 0

0
0.45
- -M&
0.46 0.47
I
0.53
I
0.54

Figure 5-25: Average Annualized Return Distribution (left) and Average Pin
Distributions (right) of the 770 Trend-Based Regression Strategies with Index
Return and Chg. of Trad. Vol. (W1 : W2 = 2 : 1) (1998-2007)
apparent relationship with the BH. The detailed performances of the strategy classes
for the first and the second case are presented in appendix B.

40%
i

30% I..... .11........

-........ -
................
............. ... ..
.............
....
.. ' - ...
.....
..... ..
.. - ..
.......
....

20%x
4
10%
0%
1998
•T.•

1999 o lool 01 2003

71L2~2004 2005 2006 2007 1998-20071
z
S-10%b U
STrend-based Regress(lndex Return, 8; Chg of Trad.Vol., 8; 20, 0.5)
-20% U Trend-based Regress(Index Return, 4; Chg of Trad.Vol., 2; 80, 0.4)
l Buy-and-Hold

Figure 5-26: Performance Changes of the Best Trend-Based Regression Strategy

with Index Return and Chg. of Trad. Vol.: Trend-based Regress(Index Return, 8;
Chg of Trad. Vol., 8; 20, 0.5) for (Wi : W2 = 1: 1) and Trend-based Regress(Index
Return, 4; Chg of Trad. Vol., 2; 80, 0.4) for (W1 : W2 = 2: 1)

TBR(Index Return, 8; TBR(Index Return, 4;

1998-2007 Chg of Trad. Vol., 8; Chg of Trad. Vol., 2; Buy-and-Hold
20, 0.5) 80, 0.4)
Annualized Return 6.53% 11.75% 4.23%
Annualized Volatility 12.57% 11.90% 18.02%
Sharpe Ratio 0.498 0.921 0.235
Average pin 0.51 0.48 1
Average NumOfTrade 132.5 110.2 N/A

Table 5.14: Performance Summary of the Best Trend-Based Regression Strategy

with Index Return and Chg. of Trad. Vol.: Trend-based Regress(Index Return, 8;
Chg of Trad.Vol., 8; 20, 0.5) for (W1 : W2 = 1 : 1) and Trend-based Regress(Index
Return, 4; Chg of Trad. Vol., 2; 80, 0.4) for (Wi : W2 = 2: 1)
 As the third case, I examined various combination of the market information vari-
ables by fixing their time window size and threshold to one period ( 1 day or 1 week)
and zero in order to explore the effects of variable combination. The exhaustive com-
binations from four variables: the index return, the change of the trading volume,
the change of the risk-free rate, and the change of the volatility index, were tested
changing the trend series numbers from 42 days to 126 days by 21 days and from 52
weeks to 156 weeks by 26 weeks. The number of total combinations examined is 110.

0% 2% 4% 6% 8% 10%
.• .. .. . ...... .... .. ..
;.. ..............
...................

TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 104 weeks, 0)

TBR(Index Return, 1; Chg of Rf Rate, 1; 78 weeks, 0)
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 104 weeks, 0) pom
)No
N
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 130 weeks, 0)
TBR(Index Return, 1; Chg of Trad.Vol., 1; 78 weeks, 0) WN"
TBR(Index Return, 1; Chg of Rf Rate, 1; 63 days, 0)
TBR(Index Return, 1; Chg of VIX, 1; 104 weeks, 0)
4 OWN
MOWN
mome
WNW
Nma NOW
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 52 weeks, 0) Nase
TBR(Index Return, 1; Chg of Rf Rate, 1; 126 days, 0) oNu No
TBR(Index Return, 1; Chg of VIX, 1; 78 weeks, 0) Nme
TBR(Index Return, 1; Chg of Rf Rate, 1; 84 days, 0) Nm N** mom
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 105 days, 0) N**
TBR(Index Return, 1; Chg of Rf Rate, 1; 104 weeks, 0)
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 78 weeks, 0) )NO
Nae
Nae
"No
MON
Nwoo"
**
---
am

TBR(Index Return, 1; Chg of Rf Rate, 1; 105 days, 0) Nese

TBR(Index Return, 1; Chg of Trad.Vol., 1; 104 weeks, 0) Nme mno
Nsms
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 130 weeks, 0) I*00" 0N4
TBR(Index Return, 1; Chg of Trad.Vol., 1; 52 weeks, 0) 0"m
TBR(Index Return, 1; Chg of Rf Rate, 1; 130 weeks, 0)
N
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; Chg of VIX, 1; 104 weeks, 0) NWWWA
*mo
Buy-and-Hold

Figure 5-27: Annualized Returns of Top 20 Trend-Based Regression Strategies with

Multiple Market Information Variables (1998-2007)

The performance of the top 20 strategies and the performance by parameters

(combination of variables and number of trend series) are presented in figure 5-27
and in figure 5-28. The strategies utilizing index return and change of risk-free rate
in weekly basis tend to perform relatively well. This observation is also supported by
a tabulation on the used variables in the top 20 strategies in table 5.15. The number
of variables used itself does not necessarily improve the performance.
Lastly I show the summary performance of the best strategy in the third strategy
class of trend-based regression with multiple variables, TBR(Index Return, 1; Chg of
Trad. Vol., 1; Chg of VIX, 1; 104 weeks, 0), in figure 5-29 and in table 5.16.
 0% 2% 4%

vi's = Index Return & Chg of Trad.Vol.

vi's = Index Return & Chg of Rf Rate
vi's = Index Return & Chg of VIX
vi's = Chg of Trad.Vol. & Chg of Rf Rate
vi's = Chg of Trad.Vol. & Chg of VIX
vi's = Chg of Rf Rate & Chg of VIX
vi's = Index Return & Chg of Trad.Vol. & Chg of Rf Rate
vi's = Index Return & Chg of Trad.Vol. & Chg of VIX
vi's = Index Return & Chg of Rf Rate & Chg of VIX
vi's = Chg of Trad.Vol. & Chg of Rf Rate & Chg of VIX
vi's = Index Return & Chg of Trad.Vol. & Chg of Rf Rate & Chg of VIX
K= 42 days
K= 63 days
K= 84 days
K= 105 days
K= 126 days
K= 52 weeks
K= 78 weeks
K= 104 weeks
K= 130 weeks
K= 156 weeks

Figure 5-28: Average Annualized Returns by Parameters of Trend-Based Regression

Strategy with Multiple Market Information Variables (1998-2007)

Use of Market Information Variables in Top 20 Trend-based Regression with Multiple Variables Strategies
Index Return Chg.of Chg.of
Trad.Vol. Rate Rf Chg.of VIX
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 104 weeks, 0) 1 1 1
TBR(Index Return, 1; Chg of Rf Rate, 1; 78 weeks, 0) 1 1
TBR(Index Return, 1; Chgof Trad.Vol., 1; Chg of Rf Rate, 1; 104 weeks, 0) 1 1 1
TBR(Index Return, 1; Chgof Trad.Vol., 1; Chg of VIX, 1; 130 weeks, 0) 1 1
TBR(Index Return, 1; Chg of Trad.Vol., 1; 78 weeks, 0) 1
1 1
TBR(Index Return, 1; Chg of Rf Rate, 1; 63 days, 0) 1 1
TBR(Index Return, 1; Chg of VIX, 1; 104 weeks, 0)
1 1
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 52 weeks, 0) 1 1 1
TBR(Index Return, 1; Chg of Rf Rate, 1; 126 days, 0)
1
TBR(Index Return, 1; Chg of VIX, 1; 78 weeks, 0) 1 1
TBR(Index Return, 1; Chg of Rf Rate, 1; 84 days, 0) 1 1
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 105 days, 0) 1 1
TBR(Index Return, 1; Chg of Rf Rate, 1; 104 weeks, 0) 1 1
TBR(Chg of Rf Rate, 1; Chq of VIX, 1; 78 weeks, 0)
TBR(Index Return, 1; Chg of Rf Rate, 1; 105 days, 0) 1 1
1 1
TBR(Index Return, 1; Ch of Trad.Vol,, 1; 104 weeks, 0) 1
TBR(Index 1
Return, 1; Chg of Trad.Vol., 1; Chi of Rf Rate, 1; 130 weeks, 0) 1 1
TBR(Index Return, 1
1; Chg of Trad.Vol., 1; 52 weeks, 0) 1 1
TBR(Index Return, 1; Chl of Rf Rate, 1; 130 weeks, 0) 1
TBR(Index Return, 1; 1
Chg of Trad.Vol., 1; Chg of Rf Rate, 1; Chg of VIX, 1; 104 weeks, 0) 1 1 1 1
Total 18 9 13 7

Table 5.15: Use of Market Information Variables in Top 20 Trend-Based Regression

Strategies with Multiple Market Information Variables (1998-2007)
 The detailed performances of the trend-based regression strategies with multiple
variables are presented in appendix B.

40% TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 104 weeks, 0)

Jv~
SBuv-and-Hold i
i
20%
10%
0%
199
I

1999
I2l~i~ 2002 2003
[1111~ 1
2004 2005 2006
LL111, 1
2007 1998-2007
-10%
-20%

i-30%

Figure 5-29: Performance Change of the Best Trend-Based Regression Strategy with
Multiple Market Information Variables: TBR(I'ndex Return, 1; C6hg of Trad.Vol., 1;
Chg of VIX, 1; 104 weeks, 0)

TBR(Index Return, 1; Chg of

1998-2007 Trad.Vol., 1; Chg of VIX, 1; Buy-and-Hold
104 weeks, 0)
Annualized Return 9.09% 4.23%
Annualized Volatility 13,13% 18.02%
Sharpe Ratio 0.748 0.235
Average pi, 0.58 1
Average NumOfTrade 22.5 N/A

Table 5.16: Performance Summary of the Best Trend-Based Regression Strategy

with Multiple Market Information Variables: TBR(Index Return, 1; Chg of
Trad.Vol., 1; Chg of VIX, 1; 104 weeks, 0)
 5.3.7 Conditional Probability Table
Regarding the conditional probability table (CPT) strategy, I examined exhaustive
combination of the four variables changing the number of trend series in the same
way of the trend-based regression with multi-variables. The four variables are the
index return, the change of the trading volume, the change of the risk-free rate, and
the change of the volatility index. The trend series number was changed from 42 days
to 126 days by 21 days and from 52 weeks to 156 weeks by 26 weeks. The number of
total combinations is 110.
0%2%4%6%8%10%12%
- j
CPT(Index Return, Chg of VIX; 78 weeks) i
i
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 126 days) i
1111 i
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 105 days) pll: t
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 84 days)
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 126 days) i
i

CPT(Index Return, Chg of VIX; 105 days) iY t

CPT(Chg of Trad.Vol., Chg of Rf Rate; 78 weeks)
CPT(Index Return, Chg of Rf Rate; 52 weeks)
CPT(Chg of Trad.Vol., Chg of Rf Rate; 130 weeks) Mai
iJ i
CPT(Chg of Trad.Vol., Chg of Rf Rate; 105 days) . i
CPT(Chg of Rf Rate, Chg of VIX; 126 days) . i
i
CPT(Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) i-"s i
i
CPT(Index Return, Chg of Rf Rate, Chg of VIX; 105 days) i
CPT(Chg of Trad.Vol., Chg of Rf Rate; 126 days) 0
CPT(Chg of Trad.Vol., Chg of VIX; 156 weeks) O
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) i
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 105 days) f
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 78 weeks)
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 105 days)
: i
i

i
CPT(Chg of Trad.Vol., Chg of Rf Rate; 156 weeks) i
Buy-and-Hold

Figure 5-30: Annualized Returns of Top 20 Conditional Probability Table Strategies

(1998-2007)

The performance of the top 20 strategies and the performance by parameters are
shown in figure 5-30 and in figure 5-31. Also the tabulation of variables used in the
top 20 strategies is presented in table 5.17. It is indicated from these figures that
various combination among variables and trading period (day or week) are effective
in the back-tests not having any significantly dominant variable.
The important characteristic of the CPT is that it can capture the non-linear
relationship between multiple variables, because it is based on the conditional prob-
abilities estimated from the market history. The results suggest that CPT could

100
 0% 1% 2% 3% 4% 5% 6% 7%

vi's = Index Return & Chg of Trad.Vol. ..

..
vi's = Index Return & Chg of Rf Rate
vi's = Index Return & Chg of VIX
vi's = Chg of Trad.Vol. & Chg of Rf Rate
vi's = Chg of Trad.Vol. & Chg of VIX r...
..........
vi's = Chg of Rf Rate & Chg of VIX
vi's = Index Return & Chg of Trad.Vol. & Chg of Rf Rate
vi's = Index Return & Chg of Trad.Vol. & Chg of VIX
vi's = Index Return & Chg of Rf Rate & Chg of VIX
vi's = Chg of Trad.Vol. & Chg of Rf Rate & Chg of VIX
vi's = Index Return & Chg of Trad.Vol. & Chg of Rf Rate & Chg of VIX
K= 42 days
K= 63 days
K= 84 days
K= 105 days
K= 126 days
K = 52 weeks
K= 78 weeks
K = 104 weeks
K= 130 weeks
K =156 weeks

Figure 5-31: Average Annualized Returns by Parameters of Conditional Probability

Table Strategies (1998-2007)

Use of Market Information Variables in Top 20 Conditional Probability Table Strategies

Index Chg.of Chg.of Chg.of
Return Trad.Vol, Rf Rate VIX
CPT(Index Return, Chg of VIX; 78 weeks) 1 1
CPT(Index Return, Chg of Trad.Vol., Chi of Rf Rate; 126 days) 1 1 1
CPT(Index Return, Chg of TradVol, Chq of Rf Rate; 105 days) 1 1 1
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 84 days) 1 1 1
CPT(lndex Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 126 days) 1 1 1
CPT(Index Return, Chg of VIX; 105 days) 1 1
CPT(Chg of Trad.Vol., Chg of Rf Rate; 78 weeks) 1 1
CPT(Index Return, Chg of Rf Rate; 52 weeks) 1 1
CPT(Chg of Trad.Vol., Chg of Rf Rate; 130 weeks) 1 1
CPT(Chg of Trad,Vol., Chg of Rf Rate; 105 days) 1 1
CPT(Chg of Rf Rate, Chg of VIX; 126 days) 1 1
CPTýChg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 1 1 1
CPT(Index Return, Chg of Rf Rate, Chg of VIX; 105 days) 1 1 1
CPT(Chg of Trad.Vol., Chg of Rf Rate; 126 days) 1 1
CPT(Chg of Trad.Vol., Chg of VIX; 156 weeks) 1 1
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 1 1 1 1
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 105 days) 1 1 1 1
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 78 weeks) 1 1 1
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 105 days) 1 1 1
CPT(Chg of Trad.Vol., Chg of Rf Rate; 156 weeks) 1 1
Total 12 15 15 11

Table 5.17: Use of Market Information Variables in Top 20 Conditional Probability

Table Strategies (1998-2007)

101
capture the various trends which the market information variables have in different
time frames.
Lastly I show the performance summary of the best CPT strategy CPT(Index
Return, Chg.of VIX; 78 weeks, 0) in figure 5-32 and in table 5.18. The detailed
performances of the CPT strategies are presented in appendix B.

40%

30%no/
20% .
10%

0%
0%4 . ..... .............
.. -tI
1998 1999 2000 2001 2002 2003
II.........................
.......... 2004 2005 2006 2007 1998-2007
I .. -........
/ • .................
...........................
I...............
............
-10% '"i
....................................

.... .... .. . .. . .. .. ... .. .

................................................................
... .........................
.... .. ..................
8 CPT(Index Return, Chg of VIX; 78 weeks)
-20% i
VBuy-and-Hold
-30%

Figure 5-32: Performance Change of the Best Conditional Probability Table

Strategies: CPT(Index Return, Chg.of VIX; 78 weeks, 0)

1998-2007 CPT(Index Return, Chg of VIX; Buy-and-Hold

78 weeks)
Annualized Return 10.71% 4.23%
Annualized Volatility 14.19% 18.02%
Sharpe Ratio 0.861 0.235
Average pi, 0.69 1
Average NumOfTrade 12.7 N/A

Table 5.18: Performance Summary of the Best Conditional Probability Table

Strategies: CPT(Index Return, Chg.of VIX; 78 weeks, 0)

102
5.3.8 Nearest Neighbors Algorithm
I examined the nearest neighbors algorithm (NN) strategy by grid-search. The time
window size parameter was changed from 2 days to 14 days by 2 (lays. The number
of nearest neighbors was changed from 10 to 50 to 500 by 50. Both regression method
and average method to forecast the next period return were tested. The number of
total combinations of parameters was 1694.
The performance of the top 20 NN strategies and the performance by parameters
are shown in figure 5-33 and in figure 5-34. From the figure 5-34 it is indicated that
strategies with the shorter time windows, the mid-size number of nearest neighbors,
and the average method performed relatively well. However majority of the top 20
strategies do not hold those properties. It is considered that non-linear nature of the
NN is affecting on good combinations of parameters.

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

NN(14, 50, 0, regression).

NN(14, 10, 0.7, regression)
NN 14, 10, 0.9, regression
NN(14, 10, 0.6, regression)
NN(12, 10, 0.1, average)
NN(14, 10, 1, regression
NN(8, 150, 0.4, regression)
NN(2, 150, 0.8, regression)
NN(14, 100, 0.8, regression)
NN(2, 150, 0.7, regression)
NN (14, 10, 0.8, regression) _
NN(6, 150, 0, regression)
NN(4, 150, 0.6, regression)
NN 2, 10, 0.2, regression
NN(2, 10, 0.1, regression •,, - I T
NN(14, 50, 0.1, regression
NN(10, 300, 0.8, regression)
NN(10, 300, 0.7, regression)
NN(4, 50, 0.1, average)
NN(8, 450, 0.6, regression)
Buy-and-Hold

Figure 5-33: Annualized Returns of Top 20 Nearest Neighbors Algorithm Strategies

(1998-2007)

In order to see the stability of the NN strategy, I examined the performances in

neighborhood of the best NN strategy NN(14, 50, 0, regression) as shown in table
5.22. The result indicates that the NN strategy would be unstable as in the case of
the trend-based regression.

103
 0% 1% 1% 2% 2% 3% 3% 4% 4% 5%

m=
r. . . . . . . . .
m=6
m=8

=14
10
= 10 jow;
350

..
0 .. . .
00.. '1
= 400 Iý
400

method = regressiom
method = averase
Buy-and-Hold 1 V"**W"

Figure 5-34: Average Annualized Returns by Parameters of Nearest Neighbors

Algorithm Strategies (1998-2007)

The NN strategy searches the similar patterns to the recent path from historical
data indifferent of time proximity or recency. It is considered that the NN tends to
average all the relevant trends in history. Therefore when the market moves shifting
its short-run or mid-run trends, the NN would fail to capture those patterns.

Returns in Neighborhood of NN(14, 50, 0,

regression) with respect to
Window Size
NN(12, 50, 0, regression) j 2.90%
NN(14, 50, 0, regression) 8.86%
Number of Nearest Neighbors
NN(14, 10, 0, regression) 6.13%
NN(14, 50, 0, regression) 8.86%
NN(14, 100, 0, regression) 4.21%
Threshold
NN(14, 50, 0, regression) I 8.86%
6 83
NN(14, 50, 0.1, regression) . %
Method
NN(14, 50, 0, regression) 8.86%
NN(14, 50, 0, average) 2. 79 %

Table 5.19: Average Annualized Returns in Neighborhood of the Best Nearest

Neighbors Strategies: NN(14, 50, 0, regression)

Next I present the average return distribution and the pi, distribution of the 1694
NN strategies in figure 5-35. It is shown that the statistics of performances are not
quite different from the random signals except that the NN generated 484 BH signals

104
out of 1694 (for the BH signal, Pi, = 1).

M·^df L)
· · I 1 1 1
Mean= 0 648
Std Dev Std Dev = 0.274
Prob(r >

300

200 E 2000I-

0
-00s
i
-,Us
--
0.00
J
0.1
00--
Emm 0.1 0.
m
OS I

Figure 5-35: Average Annualized Return Distribution (left) and Average pin
Distributions (right) of the 1452 Nearest Neighbors Strategies (1998-2007)

Lastly I show the performance summary of the best NN strategy NN(14, 50, 0,
regression) in figure 5-36 and in table 5.20. The detailed results of the NN strategies
are shown in appendix B.

40%
mNN(14, 50, 0, regression)
30%
Buy-and-Hold
20%
10% ..
0%
-10% --- 99
I--
- --.
E~

-
; I

-2003-...... --2004--.---200_5-- -- 20--20

......... 49800
• q'• '•/ _Xq_ ~1
-30% - - --------

... . ....
...
... ..
.. . . ..
.....
.... ..
.....................................................................

Figure 5-36: Performance Change of the Best Nearest Neighbors Strategies: NN(14,
50, 0, regression)

1998-2007 NN(14, 50, 0, regression) Buy-and-Hold

Annualized Return 8.86% 4.23%
Annualized Volatility 12.73% 18,02%
Sharpe Ratio 0.533 0.235
Average pi, 0.51 1
Average NumOfTrade 128.1 N/A

Table 5.20: Performance Surmmary of the Best Nearest Neighbors Strategies:

NN(14, 50, 0, regression)

105
 5.3.9 Nearest Neighbors Algorithm with Multiple Market
Information Variables
The NN strategy with multiple variables are examined in two ways. One is utilizing
two variables, the index return and the change of the trading volume, with the widow
sizes of two variables equal. The other is also utilizing the same two variables except
that the window size of the index return is double of the change of trading volume. I
show the results in this order.

Regarding the first case, I examined the NN with two variables, the index return
and the change of the trading volume by grid-search. The size of time window for the
both variables was changed from 2 days to 7 days by 1 day. The number of nearest
neighbors was changed from 10 to 50 to 500 by 50 and threshold was changed from 0
to 1 by 0.1. The total combinations are 1452.
0% 2% 4% 6% 8% 10% 12%
NN(Index Return, 3; Chg of Trad. Vol., 3; 400, 1, regression) li -
-ý'=- -J I ý ý II
NN(Index Return, 3; Chg of Trad. Vol., 3; 400, 0.9, regression)
NN(Index Return, 3; Chg of Trad. Vol., 3; 500, 1, regression)
NN(Index Return, 2; Chg of Trad. Vol., 2; 450, 0.6, regression)
NN(Index Return, 3; Chg of Trad. Vol., 3; 400, 0.8, regression)
NN(Index Return, 3; Chg of Trad. Vol., 3; 500, 0.7, regression)
NN(lIndex Return, 3; Chg of Trad. Vol., 3; 400, 0.7, regression)
NN(index Return, 3; Chg of Trad. Vol., 3; 450, 0.8, regression)
NN Index Return, 3; Chg of Trad. Vol., 3; 150, 0.7, regression)
Ti
NN (ndex Return, 3; Chg of Trad. Vol., 3; 400, 0.6, regression
NN Index Return, 3; Chg of Trad. Vol., 3; 150, 0.8, regression
NN(Index Return, 3; Chg of Trad. Vol., 3; 450, 0.7, regression)
NN(Index Return, 3; Chg of Trad. Vol., 3; 150, 0.6, regression)
NN(Index Return, 3; Chg of Trad. Vol., 3; 150, 0.9, regression)
NN(Index Return, 3; Chg of Trad. Vol., 3; 500, 0.6, regression)
NN(lndex Return, 3; Chg of Trad. Vol., 3; 500, 0.9, regression)
NN(Index Return, 3; Chg of Trad. Vol., 3; 450, 1, regression)
NN(Index Return, 3; Chg of Trad. Vol., 3; 400, 0.5, regression)
NN(Index Return, 2; Chg of Trad. Vol., 2; 450, 0.5, regression)
wil
NN(Index Return, 3; Chg of Trad. Vol., 3; 150, 0.5, regression)
Buy-and-Hold

Figure 5-37: Annualized Returns of Top 20 Nearest Neighbors Strategies with Index
Return and Chg. of Trad. Vol. (W1 : W2 = 1 : 1) (1998-2007)

The returns of top 20 strategies and the returns by parameter (window size and
number of nearest neighbors) are shown in figure 5-37 and in figure 5-38 respectively.
They show that the strategies with the window size of 2 or 3 days for both vari-
ables and the larger number of nearest neighbors performed relatively well. On the

106
 )% 1% 1% 2% 2% 3% 3% 4% 4% 5%
4 iiý"_ _~~·__t__1 i
WFW = 4,4
1

jw"_ý--
*mom"
Room" PAS
IOWOOM'
041MM
am*$ WWWA
1~ii
k100 MOOW
i
Mow

I;d
. 0*00"r MWAWWO
Mow"
MON" No$

I
NPWW
POWO
r
WN" Mow" No
ON" 000 a
a
knt~
= 500l mom"-
Buy-and-H Ml "NNWrr
L~,..~yl~l.~..~~...l~·111*111111(1^41^11-- 1 ---
111·11·1·~1*111~

Figure 5-38: Average Annualized Returns by Parameters of Nearest Neighbors

Strategies with Index Return and Chg. of Trad. Vol. (WI : W2 = 1 : 1) (1998-2007)

other hand, the average method is better than the regression method in by-parameter
averaged performance. However, no average method is ranked in the top 20.
Next I examined the performances in a neighborhood of the best strategy in the
class of strategy NN(Index Return, 3; Chg of Trad. Vol., 3; 400, 1, regression). The
results are shown in table 5.21. It seems that the stability increased in comparison to
the NN strategy with single variable, however it is less stable than MACD strategy.
In figure 5-39, I present the average return distribution and the pin distribution
of the 1452 NN strategies of the two variables with the same widow sizes. The distri-
butions are similar to the NN with single variable. In this time 406 BH signals were
generated out of 1452.

As for the other trial, I examined the strategy with double window size for the
index return by grid-search changing values of parameters. The window size was
changed from 4 days to 16 days by 2 days for the index return (from 2 days to 8
days by 1 day for the change of trading volume). Number of nearest neighbors and
threshold were changed from 10 to 50 to 500 by 50 and from 0 to 1 by 0.1 respectively.
The total number of combinations is 1694.
The result for the top 20 strategies and for by-pararreter are shown in figure 5-40

107
 Returns in Neighborhood of NN(Index Return, 3; Chg of
Trad. Vol., 3; 400, 1, regression) with respect to
Window Size
NN(Index Return, 2; Chg of Trad. Vol., 2;
400, 1, regression) 5.84%
NN(Index Return, 3; Chg of Trad. Vol., 3;
400, 1, regression) 10.97%
NN(Index Return, 4; Chg of Trad. Vol., 4;
400, 1, regression) 2.92%
Number of Nearest Neighbors
NN(lndex Return, 3; Chg of Trad. Vol., 3;
350, 1, regression) 8.47%
NN(Index Return, 3; Chg of Trad. Vol., 3;
400, 1, regression) 10.97%
NN(Index Return, 3; Chg of Trad. Vol., 3;
450, 1, regression) 9.00%
Threshold
NN(Index Return, 3; Chg of Trad. Vol., 3;
400, 0.9, regression) 10.60%
NN(Index Return, 3; Chg of Trad. Vol., 3;
400, 1, regression) 10. 9 7 %
Method
NN(Index Return, 3; Chg of Trad. Vol., 3;
400, 1, regression) 10.97%
NN(Index Return, 3; Chg of Trad. Vol., 3;
23
400, 1, average) 4. %

Table 5.21: Average Annualized Returns in Neighborhood of the Best Nearest

Neighbors Strategies with Index Return and Chg. of Trad. Vol. (W 1 : W2 = 1 : 1):
NN(Index Return, 3; Chg of Trad. Vol., 3; 400, 1, regression)

*UU
W/ w/Trad Vol (m:l= 1 1)
45o MI Mean= 0.616
St
400 Pr
-Std. Dev. =0.26C
soo
350
C I Im
300

250 300

200
200
ISO(

100
100

-o.o6 1 0.1 0.12

.
8 0.1
.
0 2 0.5
.
0.4 0.5
.
0.6 0.6 0.9 I

Figure 5-39: Average Annualized Return Distribution (left) and Average pin
Distributions (right) of the 1452 Nearest Neighbors Strategies with Index Return
and Chg. of Trad. Vol. (WI : W2 = 1 : 1) (1998-2007)

108
and figure 5-41. It is shown that the longest window size and moderate number for
nearest neighbors resulted in better performances. The level of the top 20 returns are
not.improved from the first trial. As seen in the first case, the average method per-
formed better than the regression method on average, even though only one average
method is observed in the top 20.

0% 2% 4% 6% 8% 10%
NN(Index Return, 16; Chg of Trad.Vol., 8; 150, 0.1, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 150, 0, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 150, 0.2, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 150, 0.3, regression)
NN(Index Return, 12; Chg of Trad.Vol., 6; 200, 0.4, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 250, 0.8, regression)
NN(Index Return, 8; Chg of Trad.Vol., 4; 300, 0.4, regression
NN(Index Return, 16; Chg of Trad.Vol., 8; 300, 0, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 250, 1, regression)
NN(Index Return, 14; Chg of Trad.Vol., 7; 500, 0.9, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 250, 0.9, regression)
NN(Index Return, 4; Chg of Trad.Vol., 2; 50, 0.1, average)
NN(Index Return, 8; Chg of Trad.Vol., 4; 300, 0.5, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 300, 1, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 450, 0.9, regression)
NN(Index Return, 12; Chg of Trad.Vol., 6; 200, 0.5, regression)
NN(Index Return, 8; Chg of Trad.Vol., 4; 300, 0.2, regression)
NN(Index Return, 12; Chg of Trad.Vol., 6; 200, 0.7, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 250, 0.7, regression)
NN(Index Return, 16; Chg of Trad.Vol., 8; 450, 0.1, regression)
Buy-and-Hold

Figure 5-40: Annualized Returns of Top 20 Nearest Neighbors Strategies with Index
Return and Chg. of Trad. Vol. (W 1 : W2 = 2 : 1) (1998-2007)

0% 1% 1% 2% 2% 3% 3% 4% 4% 5%

wo"& N06MWO
U-AM m00
WMWAW
No
6 0
NPWOPO NOOOMM"O
AWO
**No
NAAW
MON"
ON" NO W000
S
no
""No N4" O
NWRONO W"M
"NO "Now U-ONW
mo-"
wp" WNW
method = 0 mo*
N000
methO regress o NWWA Noo
PNO
mettlo = ae ONO" WA-"
N
N
Buy-and-Ho1d U- WANWOON*

Figure 5-41: Average Annualized Returns by Parameters of Nearest Neighbors

Strategies with Index Return and Chg. of Trad. Vol. (W1 : ,2= 2 : 1) (1998-2007)

109
 In terms of stability in a neighborhood of the best strategy NN(Index Return, 16;
Chg of Trad. Vol., 8; 150, 0.1, regression) in this second strategy class, it is unstable
against the changes in parameters except for the threshold parameter as indicated in
table 5.22. It seems that the relatively unstable tendency is in common for the all
three NN strategy classes examined in this study.

Returns in Neighborhood of NN(Index Return, 16; Chg of

Trad.Vol., 8; 150, 0.1, regression) with respect to
Window Size
NN(Index Return, 14; Chg of Trad. Vol.,
7; 150, 0.1, regression) 3.29%
NN(Index Return, 16; Chg of Trad. Vol.,
8; 150, 0.1, regression) 9.87%
Number of Nearest Neighbors
NN(Index Return, 16; Chg of Trad. Vol.,
8; 100, 0.1, regression) 2.62%
NN(Index Return, 16; Chg of Trad. Vol.,
9
8; 150, 0.1, regression) .87%
NN(Index Return, 16; Chg of Trad. Vol.,
8; 200, 0.1, regression) 5.63%
Threshold
NN(Index Return, 16; Chg of Trad.Vol.,
8; 150, 0, regression) 9.59%
NN(Index Return, 16; Chg of Trad. Vol.,
8; 150, 0.1, regression) 9.87%
NN(Index Return, 16; Chg of Trad. Vol.,
8 49
8; 150, 0.2, regression) . %
Method
NN(Index Return, 16; Chg of Trad. Vol.,
8; 150, 0.1, regression) 9.87%
NN(Index Return, 16; Chg of Trad. Vol.,
8; 150, 0.1, average) -0.30%

Table 5.22: Average Annualized Returns in Neighborhood of the Best Nearest

Neighbors Strategies with Index Return and Chg. of Trad. Vol. (W 1 : W2 = 2: 1):
NN(Index Return, 16; Chg of Trad.Vol., 8; 150, 0.1, regression)

Next I present the average return distribution and the pi,• distribution of the 1694
NN strategies of the two variables with double window size for index return in figure
5-42. It is shown that the distributions are similar to the former NN strategy classes.
Out of 1694 strategies, 406 BH signals were generated in this case.
Lastly I show the performance summary of the best NN strategies with index
return and change of trading volume in the two cases in figure 5-43 and in table 5.23.
The detailed performances of the both NN strategy classes are shown in appendix B.

110
 DUU
I · I - · · · · · ·
I ...........
W/Trad Vol (ml= 21 w/Trad Vol. (ml=
ME Mean= 0623
500 St Std Dev = 0.262
Pr(
400

300

200

100
,L. _.
0 0.5 gl
4006 008 0.1 0 01 02 0. 0. 01 O.O
0.0 U9
09 1

Figure 5-42: Average Annualized Return Distribution (left) and Average pi,,,
Distributions (right) of the 1694 Nearest Neighbors Strategies with Index Return
and Chg. of Trad. Vol. (W1 : W2 = 2 : 1) (1998-2007)

40%
03ofl%.
no . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .
-,,, U.
20%

10%
n .. .
......
....... ... ..E l..L
-10% --.
1998 1999.. 2005 1 2003 2004 -2005 2006 2007 1998-2007
-20% -3--U----·~--------- NN(lndex Return, 3; Chg of Trad. Vol., 3; 400, 1, regression)
a NN(Index Return, 16; Chg of Trad.Vol., 8; 150, 0.1, regression)
-30%
0 Buy-and-Hold

Figure 5-43: Performance Change of the Best Nearest Neighbors Strategies with
Index Return and Chg. of Trad. Vol.: NN(Index Return, 3: Chy of Trad. Vol., 3;
400, 1, regression) for (tW : WT= 1 : 1) and NN(Index Return, 16; Chg of
Trad. Vol., 8; 150, 0.1, regression) for (W1 : W 2 = 2 : 1)

NN(Index Return, 3; NN(Index Return, 16;

1998-2007 Chg of Trad. Vol., 3; Chg of Trad. Vol., 8; Buy-and-Hold
400, 1, regression) 150, 0.1, regression)
Annualized Return 10.97% 9.87% 4.23%
Annualized Volatility 13.02% 13.32% 18.02%
Sharpe Ratio 0.884 0.737 0.235
Average pin 0.52 0.52 1
Average NumOfTrade 79.4 121.5 N/A

Table 5.23: Performance Summary of the Best Nearest Neighbors Strategies with
Index Return and Chg. of Trad. Vol.: NN(Index Return, 3; Chg of Trad. Vol., 3:
400, 1, regression) for (W4 : 4/' = 1 : 1) and NN(Index Return, 16; Chg of
Trad.Vol., 8; 150, 0.1, regression) for (W1, : W = 2 : 1)

111
5.3.10 Best Performer Selection in Combination with Indi-
vidual Strategies

The individual strategies examined so far have a serious problem in practice as I

mentioned in section 3.4, that is how to select the right strategy from a number of
strategies with different parameter values. The best performer selection strategy and
the voting strategy try to cope with this problem.
In order to evaluate the effectiveness of best performer selection, I examined the
strategy in combination with individual strategies. The detailed performances of each
best performer selection strategy with individual strategy are shown in appendix B.
Also particular strategies which were selected in each trading period are shown in
appendix B.
To provide a bird'steye view, I show the result from the best selection strategy
in combination with the aggregated strategies. Specifically, the eight of previous
strategy classes (contrarian/momentun, MACD, TBR, two classes of TBR with index
return and change of trading volume, NN, and two classes of NN with index return
and change of trading volume) were aggregated to be utilized for the best performer
selection strategy. The number of aggregated strategies is 8808. Also the selection of
the best performer was executed both in monthly basis and in annual basis.
In table 5.24, I show the five-period ranking transition of the top 10 performers
in one period before the start of the trading horizon from 1998 to 2007. The best
performing strategy was selected as the candidate for the first period of the horizon.
As we can see, the higher ranking in the current period does not necessarily guarantee
the equally higher performance in the subsequent period. This simple rule was not
able to effectively switch the strategies along with the evolving market situation.
For reference, I show the performance summary of the best selection strategy in
monthly basis and in yearly basis in figure 5-44 and in table 5.25.

112
 Eight Strategy Classes (Number of Strategies = 8808)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.1) 1 7192 4518 4705 7444 8569
TBR(Index Return, 6; Chg of Trad.Vol., 6; 70, 0.4) 2 5478 4520 4302 1046 8778
TBR(Index Return, 6; Chg of Trad.Vol., 6; 70,0,3) 3 5480 4519 4736 1041 8779
TBR(Index Return, 6; Chg of Trad.Vol., 6; 70,0.2) 4 7193 4517 4735 1045 8568
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70,0.9) 5 5897 5483 5213 1586 7888
TBR(Index Return, 6; Chg of Trad.Vol., 6; 70, 0) 6 7188 4516 4704 7443 7886
TBR(Index Return, 6; Chg of Trad.Vol., 6; 70, 0.8) 7 5896 5484 4195 1685 7889
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.5) 8 5476 5480 4376 1042 8777
TBR(Index Return, 6; Chg of Trad.Vol., 6; 80, 0.3) 9 5793 5139 6072 1661 7641
TBR(Index Return, 6; Chg of Trad.Vol., 6; 80, 0.6) 10 1530 4486 6312 1662 8237
Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0) 1 3506 8479 8104 4198 5313
TBR(Index Return, 12; Chg of Trad.Vol., 6; 70, 0.3) 2 3229 8774 7784 4057 3342
TBR(Index Return, 12; Chg of Trad.Vol., 6; 80, 0) 3 3587 8708 8348 3755 2559
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0.1) 4 3513 8381 8499 4374 4651
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0.4) 5 3238 7995 8268 2920 4324
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0.3) 6 3733 6874 8415 2790 5135
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0.2) 7 3537 6761 8502 3086 5658
TBR(Index Return, 12; Chg of Trad.Vol., 6; 70, 0.2) 8 3334 8796 8225 3957 4908
TBR(Index Return, 12; Chg of Trad.Vol., 6; 70, 0.4) 9 3534 8762 7871 3917 3651
TBR(Index Return, 12; Chg of Tra d Vol., 6; 70, 0.5) 10 3777 8788 7737 3641 4037

Table 5.24: Ranking Transition of Top 10 Strategies in Five Subsequent Periods

30% '~ '~ ' " " '

MBest Pertormance selection(monthly)
Best Performance Selection(yearly)
..........
20% a Buy-and-Hold
10%

0no :-·~r~lrv ·r····~-·r _ ~I- 2U _ U

-10%
1998 1999 0 2 2003 2004 2005 2006 2007 1998-2007!

-20% -
-30%

Figure 5-44: Performance Change of Best Performer Selection Strategy in

Combination with Eight Strategy Classes (1998-2007)

1998-2007 Best Performance Best Performance Buy-and-Hold

I Selection(monthly) Selection(yearly)
Annualized Return -0.57% 3.80% 4.23%
Annualized Volatility 12.39% 12.66% 18.02%
Sharpe Ratio -0.046 0.301 0.235
Average pi, 0.49 0.53 1
Average NumOfTrade 105.8 90.4 N/A

Table 5.25: Performance Summary of Best Performer Selection Strategy in

Combination with Eight Strategy Classes (1998-2007)

113
 5.3.11 Voting in Combination with Individual Strategies
The voting strategy has the same motivation as the best performer selection strategy
to automate the selection of a strategy for next period. I examined the voting strategy
in combination with individual strategies. The detailed performances of each voting
strategy with individual strategy are shown in appendix B.
To illustrate the big picture of the back-test results on the voting strategy, I show
the performance of the voting strategy applied for the same aggregation of eight
strategy classes as used for the best performer selection.
Even though it is self-contradictory to explore parameter values for the voting
strategy which tries to become automatic, I examined several cases with voting mern-
bers from 5 to 50 by 5 and monthly/yearly voting for the purpose of reference. The
results are shown in figure 5-45.

1-6% -4% -2% 0% 2% 4% 6%

._. _ _1._.._._I.._~._._......
.. L....... ...... ..........- ------........-
-....... ..--
Voting (5, monthly) 1
Votingf O,monthly) , 1
Voting( 15, monthly :
*"NoI~
I
Votin
Voting 0,monthly *wow#
Voting
Voting 3, monthly '
i Voting( 0, monthly -
n,(5, yearly)
Votin l 10, yearly . p
?Y
2•- .. ........
..... - ...................... j
Votinrg 15, yearly .
Votir g 20, yearly m
j Votin S25, yearly m
Votin g 30, yearly
Votin 35, yearly w.
Votin S40, yearly
Boi
g50, yearly
uv-and-Hold -
............................................... . ...........................
.......... . .... ...................................................................................................................................................
..............

Figure 5-45: Annualized Returns of Voting among Eight Strategy Classes by

Parameters (1998-2007)

As indicated, no single case outperformed the BH unfortunately. It suggests that

voting process causes some sort of compromise with respect to prediction or detection
of market trends and turns out to be lower performances.

114
 For reference, I show the performance summary of the best voting strategy Vot-
ing(50, yearly) in figure 5-46 and in table 5.26.

30% ...-- - -- --..........--- ----- n

ItinI---n VI--------
Buy-
V ,- I yH ,yd
..
............ a Buy-and-Hold
20%

10% i.. ...

.....
..
.....~
......
, ..
,.. _.... ...

-10%1998 1999 2 2003 2004 2005 2006 2007 1998-2007

-1 % ' ..........
.........
............
. .......
.... ?...

-30% -------

Figure 5-46: Performance Change of the Best Voting Strategy in Combination with
Eight Strategy Classes: Voting(50, yearly)

1998-2007 Voting(50, yearly) Buy-and-Hold

Annualized Return 3.37% 4.23%
Annualized Volatility 12.38% 18.02%
Sharpe Ratio 0.272 0.235
Average pi, 0.5 1
Average NumOfTrade 106.7 N/A

Table 5.26: Performance Summary of the Best Voting Strategy in Combination with
Eight Strategy Classes: Voting(50, yearly)

115
5.4 Summary of Empirical Analysis

In this research, as shown until now, I executed the back-testing on 15 classes of

strategies. I present the summary performances of the best strategies in each class in
table 5.27. For reference, the betas are calculated based on monthly rate of returns
against those of the BH, i.e. S&P 500 stock index returns.

1998-2007 Annualized Annualized Sharpe Ratio Average p Average beta

Return Volatility NumOfTrade
Contrarian(weekly) 7.53% 13.76% 0.63 0.47 26.5 0.50

Contrarian(Chg.of Trad. Vol., weekly) 7.72% 13.26% 0.64 0.49 33.2 0.62
7
Momentum(Chg.ofRf Rate, daily) 5.9 % 13.55% 0.50 0.61 110.9 0.65

Momentum(Chg.of VIX, weekly) 8.21% 13.45% 0.68 0.48 29.6 0.54

MACD(25, 280, 0.02) 8.37% 13.53% 0.61 0.74 0.2 0.59

Trend-based Regression(8, 100, 0.5) 7.59% 12.29% 0.61 0.45 12 0.40

TBR(Index Return, 8; Chg of Trad. Vol., 8; 6.53% 12.57% 0.50 0.51 132.5 0.47
20, 0.5)
TBR(Index Return, 4; Chg of Trad. Vol., 2; 11.75% 11.90% 0.92 0.48 110.2 0.42
80, 0.4)
TBR(Index Return, 1; Chg of Trad.Vol., 1;
9.09% 13.13% 0.75 0.58 22.5 0.73
Chg of VIX, 1; 104 weeks, 0)

CPT(Index Return, Chg of VIX; 78 weeks) 10.71% 14.19% 0.86 0.69 12.7 0.68

NN(14, 50, 0, regression) 8.86% 12.73% 0.53 0.51 128.1 0.35

NN(Index Return, 3; Chg of Trad. Vol., 3;
10.97% 13.02% 0.88 0.52 79.4 0.85
400, 1, regression)
NN(Index Return, 16; Chg of Trad. Vol., 8; 3 320
9.87% 1 . /% 0.74 0.52 121.5 0.47
150, 0.1, regression)

Voting(50, yearly) 3.37% 12.38% 0.27 0.5 106.7 0.39

2
Best Performance Selection(yearly) 3.80% 1 .66% 0.30 0.53 90.4 0.51

Credit Suisse/Tremont Hedge Fund Index 9.46% 6.68% 0.90 N/A N/A 0.16

Buy-and-Hold 4.23% 18.02% 0.23 1 N/A 1

Table 5.27: Performance Summary of the Best Strategies by Strategy Classes

Examined in the Study

To provide graphical overview, I present a plot in terms of return and risk in figure
5-47. It is shown that all the best strategies have lower risks than the BH and higher
risks than the hedge fund index. Regarding the Sharpe ratio which is a slope of a line
from the origin to a strategy, the Sharpe ratios of the best strategies are in between
those of the BH and the hedge fund index similarly to the case of risk.
The two meta-level strategies, best performer selection and voting, have lower
performances than the BH. However their SR's are slightly larger than the BH. On

116
the other hand, the strategies which utilized change of trading volume and/or change
of VIX in addition to the stock index return as the information to predict future return
demonstrate higher performances except for TBR(Index Return, 8; Chg of Trad. Vol.,
8; 20, 0.5). The strategies which used only one source of market information have
lower performances than the strategies with two or three market information sources.

n 1I
u.I2
* TBR(Index Return,4; Chgof Trad.Vol., 2; 80, 0.4)

* NN(IndexReturn,3; Chgof Trad.Vol.,3;400, 1, regress ion)

* CPT(IndexReturn,ChgofVIX; 78 weeks)

* NN(IndexReturn,16;Chgof Trad.Vol., 8; 150, 0.1,re4gresslon)

CreditSuisse/Tremont
HedgeFundIndex
* TB(I ndex Return,1; Chg of Trad.Yol., 1; ChgorVIX, 1;104weeks,0)
0 NN(14, 50, 0, regression)

0.00 0*W& ?%MPAg ,weekly)

Contrarian(Chg.ofTrad.Vol weekly)
* TrenO-'•aqd~g s.ror(.00, 0.5)

Return,8;Chgof Trad.Vol.,B;20, 0.5)

* TBR(Index
0.06 * Momentum(Chg.of
Rt Rate,daily)

Se early)
* Best Performance

........
u -
0 0.02 0.04 0.06 0.00 0.1 0.12 0.14 0.16 0.10 0.2
Annualized
Volatilly

Figure 5-47: Annualized Return-Annualized Volatility Plot of the Best Strategies by

Strategy Classes Examined in the Study (1998-2007)

Next I show a plot of the strategies in terms of return and pi", a proportion of
in-the-market periods to the entire periods of trading horizon. Figure 5-48 shows
positions of the best strategies in relation to the upper boundary and the boundary
of the 5 % level significance as introduced in section 4.2 and section 4.3. The enlarged
figure regarding the plots of strategies is figure 5-49.
The upper boundary are calculated based on both lognormal distribution assump-
tion and historical data of the realized index returns. As for the lognormal assumption

117
case, average rate of return and volatility were estimated by the daily index returns
from 1997 to 2007, the trading horizon of the back-tests. The upper boundary based
on the historical data is calculated using realized daily returns from 1997 to 2008 and
picking up the N pin highest returns from them.
Comparing the two upper boundaries, the boundary estimated by lognormal dis-
tribution is above the historical data-based around pi,, = 0.5. This is though to be due
to the negative skewness of the historical returns. In contrast, in the area in which pin
is close to 0 or 1, the boundary based on historical data is above the lognormal-based
because of the fat tails in the historical data. Looking into the figures, all the best
..uoner.
- .~
r - Desea on lognormai alst.
pp
r- based ;n Ii'hsrrlcal data (1997-2007)

S0.8
cr
a) di7 k
•/" ./ -
. ,',//"",
wm0
r O
1 ."\"•
./'\.
,4

rlower 5 %significance level *,

I I I I I 1 I
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Piw

Figure 5-48: Annualized Return-Average pin Plot of the Best Strategies by Strategy
Classes Examined in the Study (1998-2007)

strategies are located above the 5 percent significance level boundary, however there
is a large room to the upper boundary. It is indicated that despite the possibility of
tremendous performance in appearance, the market is so efficient that approaching
to the upper boundary in significant amount is quite difficult. Even a modest shift
toward the upper boundary can make significant difference with respect to trading
performance.

118
 U0.
12I -

* TBR(lndexReturn,4; ChgorTrad Vol.,2. 80, 0.4)

* NN(IndexReturn,3;ChgofTrad Vol.,3; 400, 1, regression)

* CPT(Index Return,Chg ofVD(;78 weeks)

0.1
* NN(ndex Return. 16;Chg ofTrd Vol.,B; 150,0.1,regression)

* TBR(Index Return, 1;Chg ofTrad.Vol.,

1;Chgof VD( 1;104weeks,0)
* NN(14,50,0,regresslon)

VYI,weekly)
* Momentum(Chg.of * MAC(25, 280, 02)
0.08
Con.armn(Chg.of Trad.Yol.,
weekly)
* A-base([R% ýlon(6, 100, 0.5)

* TBR(lndexReturn,8, Chg of TradVol.,8; 20, 0.5)

0.06 * Momentum(Chg.of
RfRate,daily)

0.04 * Buy-and-Hold
SBest Performance Seection(year
*Voting(50, yearly)

0.02

t i I I I I i I I I I J
0.
0. 02 0. 0.4 0.5 0.6 0.7 0.8 0.9
Pin

Figure 5-49: Enlarged Annualized Return-Average pin Plot of the Best Strategies by
Strategy Classes Examined in the Study (1998-2007)

About the value of Pin, Trend-based Regression(8, 100, 0.5) has the smallest value
and MACD(25, 280, 0.02) has the largest value. As discussed in chapter 4, it could
be suggested that strategies with lower pin such as Trend-based Regression(8, 100,
0.5) are safer regarding jump events because of their shorter total time in the market.
Finally, I studied the correlation between monthly returns of the strategies during
the 10-year horizon to find any relationship among them. The result is presented
in table 5.28. Correlation coefficients greater than 0.6 are shadowed and average
correlation coefficients are put in the last column.
It is indicated that two-thirds of the strategies have relatively larger correlation
with the buy-and-hold. Interestingly the strategies which use the same market in-
formation don't necessarily have larger correlations. Also NN strategies and TBR
strategies have lower correlations with others even though there are a few exceptions.

119
c'j
NN(14,
, , regression) 0.31 0.29 0.19 0.19 0.33 0.35 0.26 0.41 0.21 0.32 1.00
Buy-and-Hold.53.48
4 .57Q)- 0.55 0.32 1.00 0.29
0.61

00,0,02)
CD MACD(25, 280, 0.5) 0.43
Trend-basedRegression(8, 0.52 0.60
0.34 0.35 0.42 0.45
CPT(ndex0.29 1.00
0.44 Chg
Return, 1.00of0.54
0.45 VX; 0.34
78 weeks) 1.00
0.47
0.37
0.53

Contrarian(weekly) 1.00 0.45

Contrarian(weekly) 1.00 0.45
Momentum(Chg.ofRf Rate, daily) 0.35 0.51 1.00 0.43
Momentum(Chg.of VlX, weekly) 0.35 0.49 1.00 0.44

cD

Cr2
Chapter 6

Conclusion

In this study, I examined empirically the performances of quantitative trading strate-

gies by back-tests assuming that we traded S&P 500 stock index from 1998 to 2007.
Then I also examined the possible sources of profitability for successful strategies.
I introduced various quantitative trading strategies to examine from simple rules to
data-mining algorithms, from linear models to non-linear models, and from recency-
based approaches to pattern-based approaches. Also market information used to
generate trading signals had a wide variety of variables such as stock index itself,
trading volume, risk-free rate and implied volatility of stock index.
Some strategies recorded superior performances to the benchmark. It was sug-
gested that the sources of the high performances could be attributed to several very
small but statistically significant relationships which we could observe in the historical
data of market information in the short-run, in the mid-run, and in the long-run.
However the practical problem is how we can select these winners beforehand
from all candidates of quantitative strategies including losers in the beginning of our
investment horizon. The two meta-level strategies were tested to cope with this issue
but turned out to be unsuccessful. This issue is still open for future study.
Also it was shown that even the best strategy had a large distance to the possi-
bility boundary of returns, and that supports the market efficiency to some extent.
Quantitative trading is thought to be a kind of game to quickly adapt to a temporal
market inefficiency, resulting in the more efficient market as a consequence.

121
 In conclusion, it is considered that human discretion such as macro view on the
future market trend still plays a quite important role for quantitative trading to be
successful in the long-run. Therefore, successful quantitative trading is considered to
be a product of integration between human decision to select a right strategy along
the current market context and the capability/effciency of the selected strategy to
exploit the market context to the full.

122
Appendix A

Detailed Correlation Analysis

between Market Information
Variables

A.1 Auto-Correlation Analysis of the S&P 500 Stock

Index Returns

123
 II II
II II ii II
I x xx
x olx X I
X
I I |' I x
x
l I I
Ixx x I X
xeX K
x xx I I I
x I
I I
lx I xi xl
I I iX
x x
N•
CM
I Ii
GIt, Xl x I
X x
40 x
a"
ci 1
c- x: h-j x
E C3nC
QCM EL C3 II
<Li) X I.
I SxI
C•\ X
xl a II
lx Ii
o
o_3ý
0-0 ci1
o) x
.n
0.9; o tr
00. II xx II
x I
lX I X I I II X I
X
I K II x
x
x I X
I IV I -
Cr)
CO xi <,o
Q) Q):
I 1 I . I L I I I
d U. 0.SS u.oE -a
uaoqe uo.•o0
(V
luep~lteoo uo•,leauo juaoulam uoR'BIEWOO
i I IIx , I
x 07
CI Ln
II II a
Ii i
4c
I I II
I x x II
x Ii
ii I x Ii
I
l II xo I X Ii x
I I x xx
Xx I I x I
I
IIiI K
Iix K
I I
CM S ix x
X a"
a"

xl Six I
E

ia
w"IcM
QCM1
CMj

X
I ,-I
i X
Ix x
x
x I
I
b-
E
ciu _
:.1oCC\
c-tn xI ih
11
I I
0CM I x
noN X <L)
X I x
no0
ji
i X Ii X C)
00
ig.
xx I
x X I
X I K I Ii x xl
X i X -
cn II I ,X I
I
I I
I
I z ¢i
I X (
N C Q C TU
c, d d d
.ueanieco uo.q-lauoO lua•peco uo0;vljao3 luapa•c uoQelauoQ
Figure A-1: Change of Index Return Auto-Correlation
(Period = Daily, Time Window = 1 year)
124
 Counterpart = Dally Returnm Counterpart =DallyReturn
Window size =756, Lag # =1 Window size =756, Lag # =2
-0-=1%
-- a=5%
0.05 X
XX L

x XX
a) x
~N
flX x x
'
X
0 x x x A
X vX
Irj V- 'C xx
xx a) x X
8 -- x = - --X0xXX --x -- xX X
i_-0.05 -------- xx x - All Periods(`)
A XXXX-X
-- --
--
X- --
-0 .1 - -,.. . -- - -- -----
---- -- -- -- - -- x-
Cd
I I I t - n -- -015 I I · ^^ IA-
1985 2007 1985 2007
Time Time

Counterpart =DailyReturn Counterpart =DallyReturn

Window size =756, Lag # =3 Window size =756, Lag # =4
CD 1,4
------ -------- a=1% ui

c- -------------------
-- - - - - - - - - - - - - - a=5%
II . ..x - = 1%
XXX X-- X - -- a=5%
X i) x
XX X *0 x X
x a)
xx 'XX X
xxx x
--- --
X X
All Periods 8c x
X x
,x x *,•'
x
X
xx
Y
xx
X
X ~II
P
IOl•,ri,,
ji_pn _-- - x .4o
x
X
-0.05
x
,
xXXx
- XX 'X X S-0
05
X'C X X
Sx x X^
XX' XXx xXX
-X- x Xx X 'x
'X
------ ------
- - --- - . . . -. -. - - "-
CnCD -0.1 ·I ·i
.CC
,. --- I I
201 7
1985 1974 1985
II Time Time

Counterpart =Daily Return Counterpart =DalyReumn

9•
Window size =756, Lag # =5 Window size =756, Lag # =6
nir --- ---- -------
U0I ,
a=1%
x - = .5%
-xxa---- - x
-= 0.05 x
l-----1% x X xx
-- --- x------------- = 5% x
x .x
005 -

x x X Xx
AllPeriods
X X X XX XX --
Xxx
0 x •x x x X X X X XX
XX
X X
0
x x
XX
- All Periods
X
x
X
x xx x ---
------
x- ----- -- ---
Xx x x X X x --
X -- - - -
l .L . .J ... L^^'C
0- X ----- ----- ---
1974 1985
---- ~---- -
2UU0 963 1985
Time Time
 a=1%

Counterpart =WeeklyReturn Counterpart =WeeklyRetum

Window size =52, Lag # =1 Window size =52, Lag # =2
-a=1% -----..- ----- a=
c- 1%
--------- -------- a= 5% --- -------------------- C= 5%

X x• Y V- Y
x x x ,xx x
x X X x X x
-X )( K x x
x X X
.. X X ~~XX X
X
X xx x XXX x--X-X- X- All Periods
- X x K X X
x X x
x x . .x xx Xx X
X -X- -- X X X X
. . . . . . - - - -- - -X - " ... ..
---- ·-
1985 1985 1996 2007
Time Time
Counterpart= Weekly Return Counterpart =WeeklyReturn
Window size =52, Lag # =3 Window size =52, Lag # =4
cD -- -- - - - - - - - - - - -- --- --- -- -- -- -- - a=1% --
-- x •a=5% --- -- --- = 5%
I
w x x 0.2 -
. x x x XX
0 X X X-X-All Periods
X
x
X XX X
x
X
X
X X
Periods
All4
xX
X X
Xx X X x X X X X XX Xx xX
X
x X
X
-0.2 X X X XX
X XX X X
CD
0 __ x Xx x_
0 x-
0
. . . . . . . . . . . . . . . . . . - - - - - -
-0.4 1963
-
' I %e I
91Y63 1985 2007 1985 1996 2007
Time Time
II
Counterpart =WeeklyReturn Counterpart =WeeklyReturn
CD Window size =52, Lag # =5 Window size =52, Lag # =6
K x-
- - ----
a=1%
a=5%
- - - -a=1%
a=5%
x x 0.2 XX x
x ×
r
X X
X xx xxXX Xx XXX All Periods
xx xx x "'
All '~' """
Periods
-0.2 - XXXX X XX X x
0 x
KI X x -x
^
x X x x X
X X X
x X XX X"
0 -0.2 -X X
-,-,------_ -
.........
-- K,.-.,, I - - - -
-0.4 1 I V .. . .- - - - x , i -- - - - - -- -- -
-
I
I
963 1974 1985 1996 2007 1963 1974 1985 1996 2007
Time Time
 Counterpart =WeeklyRetun Counterpart =WeeklyReturn
Window size =156, Lag # =1 Window size =156, Lag # =2

0.2 -=1% 0.2 ---------------- ---- - - --------- a=1%

c 01
------ ------------
-----------------
----------
--------- a= 5%
J,105 0.1 - X
- ----------------------
XX
a= 5%
-XX X
- xXXX (D
0•
o x •X X
xxx
xx X v xx x xX x All Periods
XX X-x XX XX" X X
-02 XxX x
.. X
. x x All Periods(*)
0 x 3x ---
9 -0.2
------- -- ------- -- XK
-------- - ---
:-X - ---- --
------------
XX
X XXx 0 -0.3
0S-03
0. 0
I ~~ L (

1985 1996 1985 2007

L
Time Time
It
Counterpart =WeeklyReturn Counterpart =WeeklyReturn
Window size =156, Lag # =3 Window size =156, Lag # =4
1 04d

x x
.= 1% xx
x . 0.3
- -- --= 5%
XXX x x X x4 i 0.2 a=l1%
a)1 - - - - - a= 5%
XXx xx x xx x -- X _X XX All Periods .0
2
a)
0.1 x
1J

x xx xxxxx X x x x x xx
x _x x xx x
x - ----.
- ------ --
xX
x ----
- - 8
X X
'xxx x
X
XX ,,M xx xx . Peros
xA:1P
rrl ri I~
ds

' -021

o -0.2
-- - - -x
- -- A
- ---
Kx--- --
P-
o -0.3
1974 1985 1996 2007 1985 2007
II Time Time
Counterpart = Weekly Return Counterpart =WeeklyRelurn
Window size =156, Lag # =5 Window size =156, Lag # =6

---. - . . ..a = 1% ------ S--------- a=1%

--- ---- - -x -------- ----- = 5% - - -- xxx-- - - ----------- a=5%
-) x xx x
x
x x !r- xx xx x
Z xXxx
x
x x
XXxX x
.....
XPrllOi xx dse a)
a)
XXX 2
-0.1 xx X x X x .x X x - XX xxx All Periods
x--------x - - - - -. . . ..... . .. .. x.. .
- - - --------- .- .--- . .
-0.2 x - - - - X -- -.

0 -0.3 o-0.3
-0.4 ^^^
1985 1996 2007
I I
1985
~~.
_ I .. ..
2007
1963 1974
Time Time
 ..----- -- =1%

Counterp art = Monthly Return Counterp art = Monlhly Return

Window size =12, Lag # =1 Window size =12, Lag # =2

---- - - - --- ---

............. -- --.--- -- --
..----- -- - -- -- a== 1%
%
XX
X X X X x X X X ^Xx
X X XX X X X
- -- •r -x - All Periods 7T- ,= n All Periods
X X x X X xx x x
0 X XX Xx x x x
S X X x x x X Xx
2j . - X... .. - --
0 . . . . . . . -.-.-
---------------
- - --- - -- - - -- X
0
C-
1985
Time Time
II
Counterpart = MonthlyReturn Counterpart = MonthlyReturn
0 Window size =12, Lag # =3 Window size =12, Lag # =4

. ...-------------------
. -------
- --- --------- --- - ------ a= 5
----
C ~ x
c-
XX - ------ -- -- - -- - -- -- - -- -- -- - - -
X X X XX x
X XX X X
x x x X X x XX x xx x x . - All Periods
" "r•x AllPeriods x x x x x x x Xxx
X X X XX x xx x XX xg xx
-
x
-0.5 x X x x
-- x-----X--------------------
-- -------
- -----------

2007 963 1974 1985 1996 2007

Time Time
II Counterpart =Mont~ly Return Counterpart =MonthlyReturn
Window size =12, Lag # =5 Window size =12, Lag # =6
0
-...----
X
- -- --
X
xi ýý ---------
--------------
X
a=ý
-----xa=5% -a=-
0)X x xx
x
X x X
-0 X
-X x - x x xx X-. All Periods(^) X X X
0 XX - x
8 XX x x xx X x 8 X XX -X
X Xx-----
X
----X All Periods
XX x x
x x xX X X 0
-0.5 X x X X X x
XX X
o -0 ------------- K---
-----------------------------
x- -- -- - - - - - --
0) 0
I I I I I
1985 1996 2007 1996 2007
Time Time

%
 - ---- = 1%

Counterpart =MonthlyReturn Counterpart =MonmhlyReturn

Window size =36, Lag # =1 Window size =36, Lag # =2
- -- ---------------- a=1% =-----1%
- -----
-- -------- - •=----------=
5%
= 5%
XX X x x x x
X X .X X. X
x A - Jxx
All Periods XX XXX xx X
xxx
XXX 'X~XX X "x x xx All Periods
x x x
x x^x X X X XxXX XX x
x
x

CD I---- x -----
I I I I
©
1985 2007 1985
Time Time
II
Counterpart =MonthlyReturn Counterpart =MonthlyReturn
0
Window size =36, Lag # =3 Window size =36, Lag # =4
---- - --- aN-
= 1% - -- a=1%
- ----------- -- --- --- ,-=5% -- - - - - - - - - - - - - -= 5%
CD
x x
x
x xx
Xx X xx Xxxxx
x X 0-
X X
XX X
All Peroi d
X Periods
XX xX X" XX"
l Periods
8 A XX
Y"•1I'-•'• 1111JZ•

x x X XXX
xx x, 0 x X XX x x
X XX" x
X x
Cb x - -- - - - - - - - - - x - - - - - - - - -
---- --------------------------- 0
o . . . . . . . . - - - - .i. . - - - . . .

1974 1985 2007 74 1985 1996

Time Time
Counterpart =MonthlyRetunm Counterpart = Monthly Return
I-I Window size =36, Lag # =5 Window size =36, Lag # =6
Ut· ,,
u.0
--- -- x-------------------=1%
S----- ---
x x --------------- = 5%
-·----------- --
------
---- ----
-------------- - ---- - --a =5
a=5%
x xx XXx xx X X Xx
x x X x, Periods(*)
All xxX X XX
x" X
XX
x'
X X
xx
SX
X
X
X
-
---
L--
A
-I`-
XX
Xr XXX
X r~T
X
C)IerosU
x•=rl1%1
l
lA
Periods

x x Xx X x X
X
x• ."-x X X X
xIK ---------
-
x
X---
------ ----------
------
x ------
--- ·-- ·
1963 1974 1985 1996 2007 1985 1996 2007
Time Time
 .%- - - - - - - -- - -a=-- - -- a= 5%

Counterpart =QuarterlyReturn Counterpart =QuarterlyReturn

Window size =12, Lag # =1 Window size =12, Lag # =2

-------------------- a= 1%
- -----
-- - ----------- = I
---
CD
.0 ^X
8 0) -Xx AX X
,XX
A
I_ aaX
x xx
~ x

Or=
Pleriods
lA
0
X x
__X M
X
-__ Y r I11
xXxx X X XXX x xxx X X
40 xXX X xx XXX X XX XX X X
-05
o0 o ----------------- ----- ----
oa C- U)
C , I · I i
1987 2007
1987
Time Time
Counterpart =QuarterlyReturn Counterpart =QuarterlyReturn
Window size =12, Lag # =3 Window size =12, Lag # =4

----
----- _ __--------- u------a= % - -- -- -- -- - -- -- -- -- ----- - - -- cc
. . .- - - . . .
cr
CT)
I
x 0
5

.0)
0 x
XXX xxX
X
0
X xXx XXX x x
XX XX Xx •t
0 0 X All Periods m 0 - ------
WK All Periods
8 vX
X
xXx X" X '" XX X"X XX X
8 x x

H oo
0 E'- If x xx Z
0
XX X xx
co 0 XX X X
X X
Xx xx xxxx XX X
8
0 -o.s .. . .. . .
----
--- - . .
. . .. - --- ---
0
0 C)
967 1977 1987 1997 2007 967 1977 1987 1997 2007
Time Time
IIo"
Co Counterpart =QuarterlyReturn Counterpart =QuartedyReturn
Window size =12, Lag # =5 Window size =12, Lag # =6
Co
c~O - -= 1% ------- = 1%
C-
I---
05
- - ---------
x -------
-xx------------- - --
---- - -- = 5%
5%
-
X
XX X xx
X
E

x x x xx
x x CD
.0 x X
0 x/ x x
4 0 V 0 x x
All Periods
Periods
8 Xx
x
X X xxA
XX--xxx xXX--X--- x a X AX X XX "
x x xXXXXx x X
Ix x1 X
S-0.5 X X
- - - - - - - - - - xr-- - - - - - - - - - - - x 8 - ----- -- -- -- ------ -- -- -- ---
o o
0
-1
1987 1997 2007 1977 1987
Time Time

---------------------
 Pi

Counterpart =QuarterlyfReturn Counterpart =QuarterlyReturn

Window size =20, Lag # =1 Window size =20, Lag # =2
S=------- 1% =------1%
-- --- ----------- a= 5% -------------------------- x a= 5%
X

-
rn-u (XXX XXX A
X xx
YCX
XXXX
XXX
x All Periods
V
Xx x
A X
X>~
K
All Periods
XXX
-
-0.2 X X X
xx
XX x xx^ xXXr X XXXXXXX X

------------------I---.-X --- ""

X
X

CD
II I I I
1977 1987 1997 2007 1987 2007
Time Time

(0 Counterpart =OuarterlyReturn Counterpart =QuarterlyReturn

Window size =20, Lag # =3 Window size =20, Lag # =4
------------- a=1% ----------- - ------- a=1%5=1%
II
cD
---------------------------------- a=5% a= 5
_- c~o/_

X x
x X XX xX 0.2 x
- K A
X Xx XXX
x
X
x
Yllrrl
Pl
lA
i
l'i
ds

a)
0
MAAX x
rXX
X
eriosVIVU
U.--~ ,-I/

X X x xx xXx .. ..
8 -0.2 X X X x
a X XXXXK XXx x x x xx
- -0.4 - Xx

0 -0.6
CD i t i 1 I
-0.8
1987 1997 1987 2007
Time Time
Counterpart =QuarterlyReurnm Counterpart =QuarterlyReturn
I-I
cc Window size =20, Lag # =5 Window size =20, Lag # =6
-a=1% -------------- a=1%
X - = 5% Sx xx x a=5%

x Xx XX xX
x xx x x
X XXX x x
%e x x AlPeid
.-- x-- -... × All Periods XXx Al
Y" rrl 11111~

--
'-------
----- xx

1987
Time
xx x x
XX
Xx
-

2007
A
x x -xx
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·--- ----
1975 1983 1991 1999 2007 1991 1999 2007
Time Time
A.3 Correlation Analysis between the S&P 500
Stock Index Returns and the Change of its
Trading Volumes

145
 Counterpart =DailyChange of Trad Vol Counterpart =DailyChange of Trad. Vol.
Window size =252, Lag # =1 Window size =252, Lag # =2
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I i it r
1985 1985 2007
Or
Time Time

Counterpart =DailyChange of Trad Vol. Counterpart =DailyChange of Trad. Vol.

Window size =252, Lag # =3 Window size =252, Lag # =4
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C~ -0.2
1985 1974 1985
Time Time

Counterpart =DallyChange of Trad Vol. Counterpart =DailyChange of Trad. Vol.

Window size =252, Lag # =5 Window size =252, Lag # =6
SC~ -a=1%
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1963 1974 1985 1996 2007 1974 1985 1996

Time Time
 Counterpart =DailyChange of Trad. Vol. Counterpart =DailyChange of Trad. Vol.
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1974
r - - - - - -
1985
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Time Time
II Counterpart =DailyChange of Trad Vol. Counterpart =DailyChange of Trad Vol
Window size =756, Lag # =3 Window size =756, Lag # =4
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1985 2007 1974 1985 1996 2007

II Time Time
Counterpart =DallyChange of Trad. Vol Counterpart =DailyChange of Trad Vol.
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963 1974 1985 1996 2007 1985 1996 2007
Time Time
 Counterpart =WeeklyChange of Trad. Vol Counterpart =WeeklyChange of Trad. Vol.
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1985 1985
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Time Time

Counterpart =WeeklyChange of Trad. Vol. Counterpart =WeeklyChange of Trad. Vol.

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i I I 200
963 1974 1985 1996 2007 1974 1985 2007
Time Time
II
Counterpart =WeeklyChange of Trad Vol Counterpart =WeeklyChange of Trad. Vol
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198 19529
I~ · ~-·
1963 1974 1985 1996 2007 1985 1996 2007
Time Time
 Counterpart =WVVeeklyChange of Trad. Vol. Counterpart =WeeklyChange of Trad. Vol.
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1974
Time Time

Counterpart =WeeklyChange of Trad. Vol. Counterpart =WeeklyChange of Trad. Vol.

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1974 1963 1974 200UU

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1974 20071 11963 1974 1985 1996

Time Time

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Time Time
Counterpart =MonthlyChange of Trad. Vol. Counterpart =MonthlyChange of Trad Vol
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1974 1985 1996 1985 1996 2007
Time Time
 Counterpart =MonthlyChange of Trad. Vol. Counterpart =Mon1hlyChange of Trad. Vol.
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0.5 -
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1985
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1996 2007
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1985 1996 2007
Time Time
II C
Counterpart =MonthlyChange of Trad Vol Counterpart =MonlhlyChange of Trad. Vol.
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1974 1985 1974 1985
Time Time
Counterpart =MonthlyChange of Trad. Vol Counterpart =MonthlyChange of Trad. Vol.
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1974
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1974 1985 1996 2007
Time Time
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Counterpart =QuartedlyChange of Trad. Vol. Counterpart =QuarterlyChange of Trad. Vol.

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I I I I I I I I1967
1987 1987
Time Time

Counterpart =QuarterlyChange of Trad Vol. Counterpart =QuarterlyChange of Trad. Vol

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1977 1907 2007
1967
1967 2007 1977 1987 2007
Time Time
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Counterpart =QuarterlyChange of Trad. Vol. Counterpart =QuarterlyChange of Trad. Vol
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197 I
1997
1987 1997 2007 1977 1997
Time Time
 Counterpart =QuarterlyChange of Trad. Vol. Counterpart =QuarterlyChange of Trad. Vol.
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1987 1997 2007 1987 2007

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Counterpart =QuarterlyChange of Trad Vol. Counterpart =QuarterlyChange of Trad. Vol.
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1967 1987 2007 2007
Time Time
 Counterpart =YearlyChange of Trad. Vol. Counterpart =YearlyChange of Trad. Vol.
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2007 2007
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Counterpart =YeadlyChange of Trad. Vol. Counterpart = YearyChange of Trad. Vol
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SC~ 1971 1980 1989 1998 2007

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2007 1980 1989 1998 2007
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K- =-- - h I
 Counterpart =YearlyChange of Trad. Vol. Counterpart =YearlyChange of Trad. Vol.
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1999 1983 1991 2007
Time Time
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Counterpart =YearlyChange of Trad. Vol Counterpart =YearlyChange of Trad. Vol
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1983 1991
Time Time

Counterpart =YearlyChange of Trad. Vol. Counterpart =YearlyChange of Trad. Vol.

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i-------------------

195 200
1975 1983 1991 1999 2007 1975 1983 1991 2007
Time Time
A.4 Correlation Analysis between the S&P 500
Stock Index Returns and the 13-Week Trea-
sury Bill Rates

156
 Counterpart =DailyRisk-free Rate Counterpart =DailyRsk-free Rate
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C'D SI • . .i . _ · | i I i I
1985 1996 1985
Time Time

Counterpart =DailyRisk-free Rate Counterpart =DailyRisk-free Rate

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1996 2007 1985 1996 2007
Time Time
 Counterpart =DailyRisk-free Rate Counterpart =DailyRisk-free Rate
Window size =756, Lag # =1 Window size =756, Lag # =2
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1985 1985
Time Time

Counterpart =DailyRisk-free Rate Counterpart =DailyRisk- free Rate

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Window size =756, Lag # =3 Window size =756, Lag # =4
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91 3 1985 1963 1974 1985 1996 20C
Time Time
CD
Counterpart =DailyRisk-free Rate Counterpart =DailyRisk-free Rate
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X XX
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x _- ____
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------
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-0 15 I I
963 1974 1985 1996 2007 1974 1985 1996 2007
Time Time
 ..------ --- a= 1%

Counterpart =WeeklyRisk-free Rate Counterpart =WeeklyRsk-tree Rate

Window size =52, Lag # =1 Window size =52, Lag # =2
u.t - --------
=1% - - = 1%
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v
X XX
x X X X X
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x x x x -x X xY -x XAI Periods

X X
X
X x x
A
xxx
I- _
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X
l X I I I
C- 963 1974 1985 1985
II Time Time
0 Counterpart =WeeklyRisk-lree Rate Counterpart =WeeklyRisk-tree Rate
Window size =52, Lag # =3 Window size =52, Lag # =4
0D ------- 1%
U.A - =------
1%
--------------------- ------ -a=5% - -= 5%
0.2 - x X
XX X X XXX X XXXx x xx XXX
X x xx
X Xx X X
x xX
03
xX
x X
x
x x
x
All Periods c
8
0 XX-
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C
x X - xx XXX 0
-
-0.2 X
X X
-0.2 -X X
- - - - - -
C-
--- L I
1974 1985 1996 2007 1974 1985 1996
Time Time
II
Counterpart =WeeklyRsk-free Rate Counterpart =WeeklyRbsk-lree Rate
0 Window size =52, Lag # =5 Window size =52, Lag # =6
It - -------- =1% -----
--- -------------------- ---- a= 5% -- a=5%
0.2
XX
XX XX x x X
XX xX x XX X x XXX
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Xx
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x
X X
XX
X
All Periods
xx
X
x
x
Xx
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X S
0
------------ ------- 0C
-----------------
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. . . ..-- - -- -
. . - II

1963 1974 1985 1996 2007 1985 1996

Time Time
 -- =1%

Counterpart =WeeklyRisk-free Rate Counterpart =WeeklyRisk-free Rate

Window size =156, Lag # =1 Window size =156, Lag # =2

02 ---
-------- ------- --. .---- - .---- ----- = 5% -XX- - ---- x-------5%
-E
X X X
'E 0.1 x x X X Xx
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x
l· ·Priods
Y Y"rrl
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I-I 0 --------- - ---- -- - - -- - - - -----------------
- -
0 -
S-0.2 9 -0.2
o -0.3 c -0.3
-0.4 -0.4
1985 2007
cD Time Time
Counterpart =WeeklyRisk-free Rate Counterpart =WeeklyRisk-free Rate
Window size =156, Lag # =3 Window size =156, Lag # =4
-. C3 ""
U.

-- -- a= 1% -- - ---------- -- -- 1%
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aE xX X x x
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x xxxxx x x xx xx Xx xX XX X XxX
8

S. O ---------- X --- - -
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S-0.2
o)~
I>c
0 -0.3
O
1985 1974 1985 1996 2007
Time Time

Counterpart =WeeklyRisk-tree Rate Counterpart =WVVeeklyRisk-Iree Rate

Window size =156, Lag # =5 ^"
Window size =156, Lag # =6
U.J r

0.2 x - - - -- - - = 5%
0.2 4-
-- ------------
- =501%
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oe x x x x x
SX• x . x -• --• All Periods 0
0 - ..-- X--- -- -- AllPeriods
Xx XXxxXX X X XX x x 8 -01
------------ ---------------
_ -0.2
-02 • -0.2
5 -0.3 o -0.3
O O
-0.4
963 1974 1985 1996 2007 1985 2007
Time Time

xx- - -_------------------
----------
 x x---------
. -------------------- . ------. . ..-= --

Counterpart =MonthlyRisk-free Rate Counterpart =MonthlyRsk-lree Rate

Window size =12, Lag # =1 Window size =12, Lag # =2

---- - -~------------------
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XX x
X x x
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C X X x x
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x
X
" X
X
x All Periods X X X X X
All Periods
XX C
Xx XxXX
0 -W, x x-
S-0.5 1-
-0.5
XX x

0 --------- ------------- -- o0
a
--------- DC~~~----~~~ ~----------- ---
1 I I i I

O- 1985 2007
Time Time
Counterpart =MonthlyRisk-free Rate Counterpart =MonthlyRisk-lree Rate
Window size =12, Lag # =3 Window size =12, Lag # =4

-- a=1% ---------------------------------- --- a=1%

_ a==5% x -- - a= 5%
x X--
x x x
x
xx x X xx X
xx x
x
x x x
xX
xx 45 xx X xx x X
X --
XX x All Periods Ro All Periods
X X " X X" X 'x
CD x X x XX xx
XX0 x x x x
cD
OP
- ---- ---- ---- X _ x
. . . . . . -.•
O

II 2007 963 1974 1985 1996 2007

Time Time
Counterpart =MonthlyRisk-free Rate Counterpart =MonthlyRisk-lree Rate
Window size =12, Lag # =5 Window size =12, Lag # =6

-- -7 - - - ..-... -- - - ------
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Z %g =1%
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x
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All Periods
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8 x x
x
w xx x XX X
x X "" X
X
S-0.5 X X x
X -X
- -| i ----- | - !--- i-
0
0 ----------- ---
O
-1
1974 1985 1996 2007 1985 1996 2007
Time Time

xx X %-
 Counterpart =MonthlyRisk- free Rate Counterpart =MonthlyRisk-free Rate
Window size =36, Lag # =1 Window size =36, Lag # =2
0.5
.-.. - --- - ----- a=1% _

0
--------------- - --------- X ---- a=1%
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------ - ------=- --- 5%-
5
·- K
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X
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X X
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X
All Periods
a) v I
,C
A V, x
lA
eriods
r,·

x, x Pl

X Xxxx x x XX"
0 x •w
XXX X
- - - -- - K -
1
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xxx
cD x .......
---.......
x.... -. . 0 ..
. ... . .. .. .. . ... . .
C-)
0
-0 19
1985 2007 169V3 1974
L·
1985
· I

Time Time

SI-
Counterpart =MonlhlyPJsk-free Rate Counterpart =MonthlyRsk-free Rate
C Window size =36, Lag # =3 ,,
Window size =36, Lag # =4
r x
Cr x KX - -a=1%
u.s
-------------..------- ---- = 1%
-----
= 5% x-x ---- -- = 5%
X X X X
X
x
x
~1 __
X
Xx XXx X
Sx
X
Xx XX
x
x xX

SA x All Periods -K----

X XX X
-nl"I erios
1V
X Xx Xx
XX- X X XX X X X S XX x
XX X X
x XX XX x
x x
-- -- X - - -K-
x-
I - - . -
1974 1985 2007 1974 1985
Time Time
SII
Counterpart =MonthlyRisk-free Rate Counterpart =MonthlyRisk-free Rate
0W Window size =36, Lag # =5 Window size =36, Lag # =6
'0
u.0 - X
-I
0.4 0.4 --------------------------- - -=1%
X ------- XX a=X
" 0.2 0.2 X X X Xxx X X
0 -x K
X X-x x-x x - - - - X XX XXxX - X All Periods
0 xx x xx----xxx x xAlleriods 0 x
xxXx x x x x X Sx xXxx xx x x xx x
xX -0 2
-- x
----- - - -- - --
-0.4
- - ---- ---- ----
o -0.2
O
-0.6 -

I I 1 . I
-0.8 -0.8
"^" '^"
1963- '

31b9 11974 1985 1996 2007 1985 1996 2007

Time Time
 Counterpart =QuarterlyRisk-lree Rate Counterpart =QuarterlyRisk-free Rate
Window size =12, Lag # =1 Window size =12, Lag # =2
x
--- --x -------- - =
------ ---- -------- - =5% x= %
- - x x
x
x 1
-C
-X
x AX
x
X
A x
0 XX
XXX x
•
X~XX
X AXA X All Periods
0 Xv
X, X x x X
All Periods
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oq
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XX X X X X× X
-05
X X X . .X x .....
rD
0 0a
-1 | I i i i
I----
x x - ---
I -- -- 1 ----
- --
I
1987 2007
Time Time
'dIc '0
-I- C3 Counterpart =QuarteflyRisk-free Rate Counterpart =QuarterlyRisk-free Rate
Window size =12, Lag # =3 Window size =12, Lag # =4

--....------------ -- -------- %=5% - ------ .--.----- -a= %

-- --- -- -- a=t%
I
X X
0 x
I A xxX
X XxX
a)
0 x Xx XX XX x x x
d xx I Periods
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eroi
X X x A
PPeriods
Ax
L 0
P)
ct-7 ,,
X
xX
X XX A X All =A
Y" 'rl Ir n r~ a 0 ^ X X
x x
A X X XX X XX
-0.5 ------------------------x --- 2 -05
0
O
I I . .I.... I.... i•_
1987 1997 2007 1987 2007
Time Time
Counterpart =QuarterlyRisk-free Rate Counterpart =QuarterlyRisk-free Rate
Window size =12, Lag # =5 Window size =12, Lag # =6

-- a=1% ---------------
1%
--- x----------------- a= -- a= 5%
X
0
5

I
xx Xxxx x xx xx xXX Ax X
x xx
XX
xx X X x
X X
X x x. x X -x--- AII Perio ds XXX X X X Y---xAIl Periods
X vX X
xx 0
X X x xx
Xx
x xx
x x
0o -0 5 x xx x
0S0 -0.5- ----- .... --- ----- -
0 0

967 1977 1987 1997 2007 1997 2007

Time Time
 Counterpart =QuarterlyRjsk-free Rate Counterpart =QuarterlyRisk-free Rate
Window size =20, Lag # =1 Window size =20, Lag # =2

0.6 Xxx 06 X
--------- ------------ = 5%
04 0.4

X x X
xx X X X X X .. u,, XxX
- x XX X All Periods _ x N _ hllAPeriods~
x X X X X XX XX"X
x X XX x xx x X
x Xx x xx X xxx x XXx XX x xX
S -- _ -- ------- -------- ---- X---------------------
t o
C Iz 1987
. I I
1987
C2-o
Time Time
II

(0 Counterpart =QuarterlyRisk-free Rate Counterpart =QuarterlyRisk-free Rate

Window size =20, Lag # =3 Window size =20, Lag # =4
------ - x------- ci= 1% - --- a= 1%
PD ---------- x--------- a=5% - -- - - - - ---- 5xa=
5%
X x X Xx x
x
x x Xx .XWX stX All Periods
xX X - -
XX- - X X XX Xx
x x X X X x xX xX
- x xxAllPeriods XX X
XX XXXx X xX

0- A • I I I
967 1977 1987 1997 2007 1987 2007
Time Time
II
Counterpart =QuarterlyRisk-free Rate Counterpart =QuarterlyRisk-free Rate
07 Window size =20, Lag # =5 Window size =20, Lag # =6
-------------------- a=1% -- ------------- a=1%
PD
cc --- ------------------
xX x
a= 5% j - -- a= 5%
X
X XXX x X 02 x xxx XXXX
X Xx X X X
XXX XX --- - --X-X------- All Periods 0 ------ 1L-----~-----4~ S X v All
. . Periods
. . .
X X X XX X "X "xX
XX X x X X X X
-0 2 -X X X
X
XXX -0.4

-0.6
8
A0
-I{
1987 2007 1967 1977 1987 1997 2007
Time Time
 Counterpart =YearlyRisk-free Rate Counterpart =YearlyRjsk-free Rate
Window size =5, Lag # =1 Window size =5, Lag # =2
-
0 5
[
0.5 xx
C
a, X
X x
x xX XX Y"YC~'
S0 All Peroi d
x Y" Crl 11111-· lA
i
d

-_
lA
Pleriods
xx XX Pl

8 x x X x x X x x
0 x
42-0.5
o
X
X
XX XX X
s
'- -
XX x X X
0 0
C) X 0- SX
Cd . . . . . . . . --.-- - - - - - -- - - I
;--- ---- -1
0c- 1989 2007 1989 2007
Time Time
II Counterpart =YearlyRisk-free Rate Counterpart =YearlyRisk-free Rate
Window size =5, Lag # =3 Window size =5, Lag # =4
---------------------------- 8!~d -a-
-
X xX--- - - x
xx
0.5-X x x
cD
XX 0
X X
x All Periods X X
xX K X
a'
8
0 Xv -- x All Periods
X XXX X X
X X x xx x
..
-0.5 - -0.5 X
C-L O x
C r- *. . -
- -_ .. .. _t __--
r- --- ·--·-- - -I-- ·----- ----- ~-----------·--~--·--·-- -- ·-- I
1998 2007 1971 1980 1989 1998 2007
II Time Time

Counterpart =YearlyRisk-free Rate Counterpart =YeatyRisk-free Rate

C-fl Window size =5, Lag # =5 Window size =5, Lag # -6
.._ ...
----- ...
.. -- ---- -
xx---------
X -X--- ---------
- - ----- ---

0.5-X XX X x xx
x V
x x K",,
Periods
X•v

X X
X
Pl
eros
II •I IIJK
lA
]
riods

x- "All

x K X X
x
-0.5
x
1- xxX X -0.5 - X x
xx XX~
K
--- - - --------------------------
1980 1998 2007 971 1980 1989 1998 2007
Time Time

a--------
 Counterpart =YearlyRisk-free Rate Counterpart =YeaulyRsk-free Rate
Window size =10, Lag # =1 Window size =10, Lag # =2

--- ------------ - -- =1% --- =1%

X= 5% -- x x-X-- --------------------- a= 5%
-xx
x x XX "'^ ' '
YX AYllPeriods 1~
LIllrrlll .X. ------- All Periods
x X" X X
X
xX xXXX x Xxx
XXX x
K
-0.5 1-

0 I Ii ·# II Ir 2007
1991 1999
Time Time
SI
Counterpart =YearlyRisk-free Rate Counterpart =YearlyRisk-free Rate
Window size =10, Lag # =3 Window size =10, Lag # =4
0
1<
I-I
a=1% -- ------ 1%
x -- --------------------- - -------------------- a= 5%
xx xx x
X x x
-1E
_ x -X X All Periods
o,0 o 0 x x x xx x x • x-
•Al••Al Periods
X X X XXXX XXx X
X XX X xx x
-0.5 -0.5 X xxx xxxX xx

-1
'""
975 1983 1991 1999 2007 915 1983
II Time Time
O Counterpart =YearlyRisk-free Rate Counterpart =YearlyRsk-free Rate
Window size =10, Lag # =5 Window size =10, Lag # =6

f-
0
---- -------- a=1%
=- - -------- --- - - a=1%
---- ---------------- - c---
a=5% -a= 5%
x
Xx x x XX x •x-- .........
x x.X - All Periods
IV
All Periods 00 x X
x K
xxx x x x
xx
x X xx XX
5-x ý X XX X X-
- -0.5 i - - - - - - - - -
- - - - - -- ----------------- K ----- 0
0 .. .. .. . - - ---- - - . .. .. .
1513 5 791
IJOJ
1983
1991 1999 2007 1983 1991 1999 2007
Time Time
A.5 Correlation Analysis between the S&P 500
Stock Index Returns and the Change of the
13-Week Treasury Bill Rates

167
 Counterpart =DailyChange of Risk-free Rate Counterpart =DailyChange of Risk-free Rate
Window size =252, Lag # =1 Window size =252, Lag # =2
.---
---- -- -x - - - ------ =1% SXo.= -- - S- --- x-
1%
a=15%
=5%
0.1 Sx x X x x
x- - --- ,-- X xx
u
XX X XX X XXX X X
xx x x xx
0 X X" X X X
,= "X x ----- XAllI
Periods(**) x X
"
X
X XX
rX
X
A
X
X
-_ All Periods
X XX X X X X X x
6 -0.1
_x.--- -- ---------------- X X X
XX .X I-x-- . X
S-02 x

cD -0.3 I- ....
-0.3 I I t I I
~nh
1974 1985 UU007 1974 1985 1996 2007

Time Time

II Counterpart =DailyChange of Risk-free Rate Counterpart =DailyChange of Risk-free Rate

Window size =252, Lag # =3 Window size =252, Lag # =4
S--=1% S-----------=1%
- - -- - -- - - - - ---
K X
- - --
-
a=5% 01 - xS--------a=5% X
X XXX xl xv.
'""
XXXXX
- X X ..
x.. X X -- All Periods
x X X X
X X X X X X
-- x x -0 1
------ ------------ -----
A
X
x
I m . 963 1985 1996
1985
Time Time
II
Counterpart =DailyChange of Risk-free Rate Counterpart =DailyChange of Risk-free Rate
01
Window size =252, Lag # =5 Window size =252, Lag # =6
x
a=1% . .. .. ..
. .---------------- =1%
-- - - -- 5% --------- ------ ----- -- a=5%
x
x
-r---g----------x---=5
x X
=
u r1 , XX X X
xr x XxX X S0 S X x x
0 xxx...___X ....... ...... ..... All Periods X --- X All Periods
- X
,., XX , y X x X X 8
xx x x x
x x XXX Xx XXx
X X X X -0.1

0 --------------------
X -------------------------
II
- - -
1974
- - - ---
1985
II ---- x
200UU7
7 1985 1996
Time Time
 A

Counterpart =DailyChange of Risk-free Rate Counterpart =DailyChange of Risk-free Rate

Window size =756, Lag # =1 Window size =756, Lag # =2
- -- ------ - - - - -=1%
----- --------------- a= 1% x
-x----- -c--- = 5%
mxxx = 0.05 L x xx
xXxx X "x vx X X X
X X X x XX XICX 0
X X X XX
... . -x X - " -x---- All Periods
X x x x X
x X XX X
S0Z
I • -0.05
XX X X
x 0
CO x
m I A I I I- .- - - - - - - - - - - - - - - - - - -...
.___
1985 1996 963 1974 1985 1996 2007
-II
Time Time
Counterpart =DailyChange of Risk-free Rate Counterpart =DailyChange of Risk-free Rate
Window size =756, Lag # =3 n Window size =756, Lag # =4
cD U0I '
- -- a=1%
--= 5%
- - - - -
x - - - - -
O X X --- x x- --- I-----
C % xx XxXx x x X xx
xx xX
II
CD -x - - ----
-xx x X x-l - -'-- XX
x
A Periods
v'Y
XY
__
X^ XX
X X
X X X ri ivuu
xxx X X XX
X X
.......... ....... xxX -- - - -
.. .........- -x
--

S-1
-
X
-

I 1 i i t
·--- ·--- --
1974 1985
'-,.
cn
C Time Time
or
Counterpart =DaIlyChange of Risk-free Rate Counterpart =DailyChange of Risk-free Rate
Window size =756. Lag # =5 I Sc
.U
I
Window size =756, Lag # =6
- - a = 1%
-
,

X
--------------- -=5%
xx x x
X ----- 1%
-x 'x Xx X x
x
-- - x X--- All Periods ---- ------ - a %-------
X "^
:x XX X
PI
JA
eriods

-x XX I
X XXX X X x X
_ - ------------------- - - - - - - xx- x - Ix ---
----
1963 : . r - - - - 1985 - - -- - -- - - _T . . . . .- 7 _-..
.
- -
. .- - -- - - - r- - - 7
1963 1985 2007 1985 1996
Time Time
 Counterpart = WeeklyChange of Risk-free Rate Counterpart =WeeklyChange of Risk-free Rate
Window size =52, Lag # =1 Window size =52, Lag # =2
- -a= 1% - -a=5%
- - -- - - x =-
=5% -a=5%
0.2 - x X x
X x x x x
xx x xx xx x
0
x xx X X
X X X X.Xx : X X All Periods(*)
8 -02 x. x xx x x x
X x
x
_... -.... -... X
------------- - - - - -0.2 X-
-04 - Sx x x
3Cd ---- -- ·
-06 I i~ I

1985 1974 1985 2007

Time Time

Counterpart =WeeklyChange of Risk-free Rate Counterpart =WeeklyChange of Risk-free Rate

Window size =52, Lag #=3 Window size =52, Lag # =4
---~~-
- ---- - - - .. .. . . . y= 1% S------1%
a=-5% - --- - ---- - --------------------- -- = 5%
0.2-X
X x xx xx x xx x x
a) xX x
0 x xx x x X XX
II All Periods(*)
x· x --- - - -
-- x - - - X X X AllPeriods
CD a) x ...
8 -0.2 - -- . K
- KK
K -siCK---K-----K-K-- - x xx
-0.2 - -X X
cD -0.4
- - - - 1
-0.6 963 ^^^
963 1985
1985
Time Time

Counterpart =VVWeeklyChange of Risk-free Rate Counterpart =WeeklyChange of Risk-free Rate

Window size =52, Lag # =5 Window size =52, Lag # =6
- --a=1%
--- .. .. -- a=.cx=
1%
---------------- ---- a=5% - ------ ---------- - = ,-5%

x x x X
x xxx x X x xx x x x x xx
x x

X
- X XAll Periods
x K .~ .--- --- .. X _ All Periods
;4( x - x x x
-0.2
-- I I ----- I ----- I --- I------
1985 1996 2...
4 I i • -0.4
1963 L
1985
L
1963 1974 1985 1996 L
1963 1996 2007
Time Time
 Counterpart =WeeklyChange of Risk-free Rate Counterpart =WVVeeklyChange of Risk-free Rate
Window size =156, Lag # =1 xx Window size =156, Lag # =2

0.2 ----- ---------------- a= 1% 0.2 ------ - ----------- ----- a=1%

a= 5%A ----------- --------
-----
x a= 5%
S0.1 X
c- 0.1 - XXX xA
xx
XXX X XXXX XXX X 0" X X x
S
x _ XX AlI Periods a 0 x
X
x x x
xx,,_ x
_ _I_=1% _x AllPeriods(*)
8 -0.1- xx XXxX xXX X xx 8 -oi X X XXX X'x X x
--- I- - -- ----- X - - x------ - -- - - --
cD
1 -0.2 -X ----- -- --- ----- -----
o -0.2
0
S-0.3 - -0.3
-0.4
II L
963 1974 1996 2007
Time Time
Counterpart =VWeeklyChange of Risk-free Rate Counterpart =VWeeklyChange of Risk-free Rate
Window size =156, Lag # =3 Window size =156, Lag # =4

0.2 -a=1% ... .------ -=----- -- a=1%

a= 5%
----------------- a= 5%
O x x x x
0.1 X X X. X xxxxxx xx
X xx X XXx X X
II
cD Sx X XX xxx xx xx m
-
X
-- XXXX Xx xX
All Periods(**) - XX X XXX X X xAII Periods
x Xx -0.1 XXX X
SxxX XX _ -0.2 -- - ---------- ------ ..... -----....
o -0.3
x
l I I I
-- · -0.4
963 1974 1985 2007 2007
Time Time
II
be
C- Counterpart =WeeklyChange of Risk-free Rate Counterpart =WeeklyChange of Risk-free Rate
Window size =156, Lag # =5 Window size =156, Lag # =6
CD
---------
- -------
- -- ---- -----------------
-- - -- - --
--
- -- - --
- =1
b=
%
E_
0 xx xx XX
X Xx x
x
x XX
x x x
a)
x XXy X .. .. xi 0 -XX.XNX
_ ý-- xx,X-
2,
I"•"l ILJ& cx X -x All Periods
-1 X
xXx xx X XXX
x 8 -0 -x XX
x x x Xx
x
0
2 -.. - --
X. -- -- - --- ----- -- -- - E -0 .2
o -0.
o0 0. 3 o - 3
0 0
-0:4 I | I I -0.4 i
{
1974 1985 1996 2007 1963
1963 1985 1996 2007
Time Time

x x
 X X ------------ 0-a=5%

Counterpart =MonthlyChange of Risk-free Rate Counterpart =MonhilyChange of Risk-free Rate

Window size =12, Lag # =1 Window size =12, Lag # =2

-a= 1% x -=1%
x x
cx=5% 0.5 x
- -----
_ -a=5% __-_----
x X X x X X x XX u x
K X
X X

xx x x x All Periods(**)
A 7, AAX
S
Al lP id·---
I lA ndarie

S Kx X x x
. . x - x__- x -x - - xx - -- " x
X
X X X
x x-
Cd
CD I I | I ·
0- I I I i
1996
_1
2007 1974 1985 2007
Time Time
II
Counterpart =MonthlyChange of Risk-free Rate Counterpart =MonthlyChange of Risk-free Rate
Window size =12, Lag # =3 Window size =12, Lag # =4
C

- - ------- ------------- x =1% --------- a=1%

0e --- ------------------- =C% ----
- x " ~x x
a) X A a)
Ax XxX X SX X X x x xx xx x x x
W,
0 0 -- ~----
----------.---- X x All Periods x X . .X., X
'~ "
xxX XX XXX AXi
""
Darinrlc
"""'
S X X XX X X X
K A
x Xx x , x
x XX
0 -05
-- 0
-- .._ -- - -- x. .. .. . . . ..X
..
0 - -----------------
-..... -X -----x C
x
1-1
-1
1974 1985 199 1985 2007
CD
Time Time

Counterpart =MonthlyChange of Risk-free Rate Counterpart =MonthlyChange of Risk-free Rate

Window size =12, Lag # =5 Window size =12, Lag # =6
I-I

---.. - . ----------- ca=1% -x-- =1%

S- a=5%
-x x=5%--- ---- --
x x x x x xxx
x
X xx xx X
x X x X
X x x XXX
xx X x x x x x
-x .. .
-
All Perio ds X
X All Periods
X XX X
Xx Xx
x x XXKx XXX
Kx
-0.5 XSx x---------------------
k

.... .... ....---------------------- -

I
-1 1963 I I I -1 t963
I

1963 1985 2007

L

1963 1985
Time Time
 Counterpart =MonthlyChange of Risk-tree Rate Counterpart =MonthlyChange of Risk-free Rate
Window size =36, Lag # =1 Window size =36, Lag # =2
"'
U.3 I- -x----- - - ----- ---------- -a= 1%
- -- - - - - - - - - - - - -- -- -- - - -- --- = 5%
x x x
x x
x X
x x x x X X xX X
Sx X X AII Periods(**)
~·· -· All Periods
X X XXX, X X X XX X
. . . . -- . -
xx. - - -
x Xx xxxx x x x xx xx
X X
- -x----- - - - - - - X -- - --
9Cd
II

1985 2007 1974 1985 1996

Time Time
Counterpart =MonthlyChange of Risk-free Rate Counterpart =MonthlyChange of Risk-free Rate
Window size =36, Lag # =3 Window size =36, Lag # =4
q.o
- -- - -- - - --- = 1% --- ----------- 0------a=1%
---------- - -- - - ------------ x a = 5% ---------------------------- a=5%
XX , X v
II
©
C. x
x x
xI
xX X
XX XXX X
XXX XX XX V X - -- ' " X
X ero s"" X XX X -. XX X X '
XXx X XX Y' x- 4
xA' IPeriods
X X X "'
X x X
X X XX X
XXx
x
XxX SXXX
-- -
XX
- -- - - - - - - - - - - -

I i i -- I
1985 963 1974 1985 1996 2007
Time Time

or
I,I
Counterpart =MonthlyChange of Risk-free Rate Counterpart =MonthlyChange of Risk-free Rate
CD Window size =36, Lag # =5 Window size =36, Lag # =6
I- -a=1% -------- a=1%
----- ------------- = 5% -0~=
x x x xX
U)
Xx X
xxX X XX X X
XX X
-X X X . x x X X
xX
AllPeriods
c
8
0 x X xx XX
XXXXX xx xX X X
X
SX X
X X XX x Xx
x xx xXXx X X 19x x xx x96 20x

- - - - - - - - - - - - - - - - - - - 0
0 S ------------------------
1974 1985 2007
Time Time

5%
 Counterpart =QuarterlyChange of Risk-free Rate Counterpart =QuarterlyChange of Risk-free Rate
Window size =12, Lag # =1 Window size =12, Lag # =2

.-- ----------- a=1% -.------------------- a=1%

-- ---------- - -------- ---- a=5% a= 5%

X X X X
XXx X
X Xx Xx
_·_ _11~~__1~
K
YX All
r
Dprinrkc
XX . tx Xx
XXt e xX , X xXo xXs X--x'-All Periods
Pr
(x= 1%' X '~~
Y-`v~~ XXK
Xx x xx xxx x x X x
X XX XxX X X A
X X K w
---------------- X

Co I I I I I
2007 1987 2007
Time Time
)I Counterpart =QuarterlyChange of Risk-free Rate Counterpart =QuarterlyChange of Risk-free Rate
Window size =12, Lag # =3 Window size =12, Lag # =4

=.......
1% -a=1%
-K-- - - - - - - - -X- 0=5% ------------
.____ _ -_ X- . ,o
=
y
,=%
x

--
x x xxv
IT xx XX X x X Xx
X x X XX Y.. Y
----- Yg CI--b Y' i
All Periods
Sxx • X X XXAll Periods XX X X "XXAX
rI_-C

O
c~D x x )x x X
X X X
X X
x X ----- -0.5
- -- - --------- -------------------- x-----------

l I I i I
2007 1977 1987 1997 2007
Time Time
II
Counterpart =QuarterlyChange of Risk-free Rate Counterpart =QuarterlyChange of Risk-free Rate
CD Window size =12, Lag # =5 Window size =12, Lag # =6
DCo
tc: a=%
-- -- = 1%
. .X.
&--
R--
X--
-x -- - -- - - - - ------- a=5% ------------------
X
x--------
X
-- =t %

X x xX Xx Xx
x x X X All Periods
XXK - - Sx .-
. ~--
x----- x xx -X-- All Periods

-x x-X X XX X
_x-,- - - -

1987 1997 1987 2007

Time Time
 ------------- -a=1%

Counterpart =QuarterlyChange of Risk-tree Rate Counterpart =QuarterlyChange of Risk-free Rate

Window size =20, Lag # =1 Window size =20, Lag # =2
-=1% --------------- a=1%
------ ---- -------- - --- a=5% --- a= 5%

xX
x
x x
XXXXX•r x X X .x 0.xx x X XX
R _^ I_ X x xx All Periods
-LX-K - 3M xx.. X All Periods
X' ^
- XX
" ^ K
x xxX
XX x x x XX
x "x
---------------------
. . .. . .
½0
.. . .. . . . . .. . .

2007 1987
II Time Time

Counterpart =QuartedlyChange of Risk-free Rate Counterpart =QuartedyChange of Psk-free Rate

Window size =20, Lag # =3 Window size =20, Lag # =4
--------- -
IriS
u.o a=l1%
,os 0.4 I - . a=5%
xxx X XX
- =5%

VX X XXXX _X X x
cD S X xx x
u rrv x
.. ,,
x XX x X All Periods
SX • .,(X
xX XX
X rr xX X All r-erlocs X x
x x x Xx xx XxXX
X X XXX
x x X XX X
X

C"C-
I I I I I i· i i ·
1987 2007 1977 1987 2007
Time Time
II
C-' Counterpart =QuartedyChange of Risk-tree Rate Counterpart =QuarterlyChange of Risk-free Rate
1=1 Window size =20, Lag # =5 Window size =20, Lag # -6
----------
a=1% ------ ----- a=1%
x - ---------------- a= 5% S- - - - - - - - - - - - - - - - - -xx- - - - - - a= 5%

X XXxX XXX X xXX

X xx x,- Xx xx All Periods x
x x
.
X Sv v
x x xx X X X
XXX K., All Periods
X X X XX
AX XX X
- ----------------
i i l

L _ . _'. .. '. .. '

1977 1987 2007 1977 1987
Time Time
 Counterpart =YearlyChange of Risk-free Rate Counterpart =YearlyChange of Risk-free Rate
Window size =5, Lag # =1 Window size =5, Lag # =2
K------------------ xx x
x xxx X XX X X
x
XXX X X X 0.5-X
XXX
x
X
x
x x
All Periods x x )-- " X All Periods
-n
X x x
SX
xxx -0.5 XXX x
x x
x -X xx x
CD .. . . . . . . . . . . . . i . . . . - .- - - - - - - - - - - - - - - r~- -
r~-·--·-·-·I-·------~--·---·-I-·-·-·-·-I
1980 2007
Time Time
II Counterpart =YearlyChange of Risk-free Rate
Counterpart =YearlyChange of Risk-free Rate
Window size =5, Lag # =3 Window size =5, Lag # =4
SXX= -- --
x x
0.5 X x X
oscD x x a, x X x
- All Periods
.0
x
Xx x
-. Is XX X Xx ,n X x 0
8D
0 xX xx xX All Periods
X
OCDL X X xx -0.5 x x x xx Xxxx x
-0.5 X X - K XX XX XX KZ
© 00 -*
C-
971 1980 1989 1998 2007 1980 1989 1998 2007
II Time Time

cri Counterpart =YeaflyChange ofRisk-free Rate Counterpart = YearlyChange of Risk-free Rate

CD Window size =5, Lag # =5 Window size =5, Lag # =6
'-S

xxx XxxX
x x
*a)
Xx SX x
X
g 0 XXx X x X
xx
x x 8
x X X
-X•XýXAIIPeriods XX .......
xx x x 0
•*• -0.5 X x
-0.5 i-
xxx o
XX x 0
C) - - - - - - - - - - - - - - - - - - -XJC-----------
---- -- -- -- -I- - -- -- -- I-- - -- -- -- I- 4 .....
- -,I
1989 2007 1980 2007
Time Time

- - -
 Counterpart =YearlyChange of Risk-free Rate Counterpart =YearlyChange of Risk-free Rate
Window size =10, Lag #=1 Window size =10, Lag # =2
--- a=1% ----- 1%
---x -- ------
x x -- a=5% --- --------------- -c= - 5%
I
x X X X JCA
x x X 0
XXxXX a 0 XX
ý X All Periods .x.IXXX 'C Xx~.XXxX X
0 xx - All Periods
xxxx x x XXxxx
XxxX Xx C '
xxxx 42 -0o5
cD o
...------------------------------------ 0
©
1991 1983 1991 2007
II Time Time
Counterpart =YearlyChange of Risk-free Rate Counterpart =YearlyChange of Risk-free Rate
Window size =10, Lag # =3 Window size =10, Lag # =4
CD
- ------
I-I ---- -------------------- --- a= 1% a=1%
-..--- a--
= 5% --------- --------------- a=5%
nr
xxxx u .
X
--- , x
XXX
Axx X
Yllrrlli I~
Pl
lA
eriods
a X Xxx
x -,- vXx
xxx
XXx x
All Periods
"-X•"x X •". XX " "
i- X X x
0 x xx x

C
-0.5
1-

00
XX X_
------- ------
I1 975 1983 1991 1999 2007 1983 1999 2007
C Time Time
CD Counterpart =YearlyChange of Risk-free Rate Counterpart =YearlyChange of Risk-free Rate
Window size =10, Lag # =5 Window size =10, Lag # =6
Cc
a=1% - -----
-- ---- ------ a=1%
------------ ----------- 5% - - a=5%
x xxx
xx
XX ' XX X x
X X xx X All Periods
xX-·•"
xX'
x
Xx xx x XXX
_x-x,•
x _ ------ -----
..... ...... ...... I - -- -- -
I I I I
1991 2007 1991 2007
Time Time
A.6 Correlation Analysis between the S&P 500
Stock Index Returns and the CBOE Volatility
Index

178
 a=1%

Counterpart =DailyVI X Counterpart =DailyVIX

Window size =252, Lag # =1 Window size =252, Lag # =2
x
0.2 - 0.2 -
- - - - =1% - = 1%
S0.1 x - -x ------------ - - a= 5% i5
'o 0.1
---------- x-------
-- X- a=5%
X X X X X SPeridX(*)
x
x x x All Periods(*) 0 0 xAll Periods(*)
8 h
S0 ............% £

0
-0 1

0 0

'-1 -0.2
S
- - - -
--------------------------
- - - - 1 - -
1995 1999 2007 1999 2003 2007
0 Time Time
Counterpart =DailyVI X Counterpart =DailyVIX
Window size =252, Lag # =3 Window size =252, Lag # =4
n?
U.L ,- X u

- - -
---
=- 5%
a=1%
o
-

x x
o 03 i x x x
------ -x-=5%
x K x
- --
0
0 0 x x x
x All Periods
a) rf x 8
P) - X X
AII
. .D•ri^•lofk•
lA
Pleriods(*)

-Is II 0 . o

el 8
0 0

©
1995 1999 2007 1999 2003 2007
II Time Time
Counterpart =DailyVIX Counterpart =DailyVI X
cD U'
Window size =252, Lag # =5 ,,
Window size =252, Lag # =6
0.2 r x x 0.2 -x
-- ------ a=1% -------------- a=1%
--- a=5% ----- --------------- --- a= 5%
- --
x x x
x x (D
X x
K K .... x
vul Ir Ir 1~1 I\I
* cc x
A
l P
i
d

0
x- - ---- X--AII Periods
8 x .. x

- -01
0

I L · I I · I · ·
1999 2007 1991 1995 1999 2003 2007
Time Time
 - ----- K= a=1%
5%

Counterpart =DailyVIX Counterpart =DailyVIX

Window size =756, Lag # =1 Window size =756, Lag # =2
v.15r
nl•c nic
U. 15 -
- -- a= 1%
0.1 - X
-
--X - ---- - A= 5% - -- -- - x- - ------
- -- x --
-- -----
-_ cy= 5%
0 0s5 x x xP a,
So0.05 - 'C•x Ln^ ;

.. ..... -- - - ---- All Periods .........- - --- -X AII Periods

0. X 0 000
-
S-005 8o -0.05
-C ©
-0.1 I 1 I ! I

1995 1998 2001 2004 2007 1998 2001

o
Time Time
Counterpart =Daily VIX Counterpart =DailyV X
Window size =756, Lag # =3 Window size =756, Lag # =4
- - - -. ------------ - a=1% '-------'C
x.. - - - =15%
X x
S-- --------- -- - - -- = 5% -= 5%
X X x x x
I X X 005 x x
X X 5-

il n
Yl, -I...4•
x 2
x All Periods
a' 0
I"P
Pl
lA

id
eriods

x
O -S
C 8
0
- -0 05 -0.05 -
©
r-----l--------7-·-'-'-'T'-'-~-~-~
-0.1 =L . . . . -
II 1995 1998 2001 2004 2007 1995 1998 2001
Time Time
.,

2' Counterpart =DailyVIX Counterpart =DailyVIX

U Ir
Window size =756, Lag # =5 Window size =756, Lag # =6
u. 15 , --
X
S------------ -------------
x x a= 5%
- -------- -x- -------
--------
= 1%
a= 5% 0.05 - x x x
- X X X
--
~-
u
'All Periods
x ------- All Periods X
0
- -0 05 -
S-0.05
a0 oo
r·- l---~--~-~--'-r`---
· ·--
i I i i i _
1995 1998 2001 2004 2007 1995 1998 2001
Time Time
 Counterpart =WVVeeklyVI X Counterpart =WeeklyVI X
Window size =52, Lag # =1 Window size =52, Lag # =2
---------
= 1%
S- -- --- - 5% 0.4 - x
x xXx ----- .................
·----------
x---·---- - - - ---
- -- =y=5%
1%
x -'E

**lr
71ý
Y"~C'
fk)
nlAl Priods "'~L'~~~-' -= 0.2 -

X
P 0
X XA
P id--
XAII
IIDri..ds
YII rrrl Irlrl~

-0.2 j- t -02 -

0 - - - - -I - - - - - - - - - - -
.-
,o
Cd
- - - -- - ----

© 1999 2007 1999 2003 2007

Time Time
Counterpart =Weekly VI X Counterpart =WVeeklyVl X
I-I Window size =52, Lag # =3 Window size =52, Lag # =4
,,
0.6 ,-

CD

........... .- .- --.c. - - = 1% 1% -x-=

x----- -------- ---- ---- a=5% ------------------- 5%
X
0.2 I-

x X X X X X
xAll Periods X X X
X X
X x AIl Periods
SX X X
X

- - - - - - - - - - - - - - - - - -

0
cD
oI- 1991 )95 1999 2003 2007
I i 1
1999
t
2003 2007
I.-,
© Time Time
tl Counterpart =WeeklyVI X Counterpart =WeeklyVI X
Window size =52, Lag # =5 Window size =52, Lag # =6
0u. -
N A

x - a= 1%
x- - -----.----------- --- a= 5% ------------------------- %
0.2 1-

X X
All Periods All Periods
Sx

-0.2 - -0.2 -
,· , _ .. %
1999 2003 2007 1999 2003 2007
Time Time
 Counterpart =WVeeklyVIX Counterp art = Weekly VI X
Window size =156, Lag # =1 "" Window size =156, Lag # =2
U.3 r

S- - - -- -. -X- - - - - - - - - -- - = 1% a= 1%
-- ----------------- ------- a=5% ------------- xx -_x--- c= 5%
a)
E SX x Y, XAll Periods(*)
Y V
gA
% ~~X· 0% X XAII Periods
IU
8 -0.i
9 --------------------------
- ...... ...... ...... ------ ...... ......
o
©
I I I
2001 2004 2007 1995 1998 2001 2004 2007
Time Time

(o cx Counterpart =VWeeklyVI X Counterpart = Weekly VI X

•- C ,,
Window size =156, Lag # =3 Window size =156, Lag # =4
U.3
©'c ,-

CD0•
O.,
------------- ----- --- a=1% - --- ----- - - --- la=1%
rD rD - - - - - - - - - - - - - - ----- ---- -= 5% ---------- x--------------- a=5
Y
x e= 1%
aCt v YX All Periods x x x x xAllPeriods
x
X x c•= ,.5%
X x

•.3•
• ..
,

IL
09 i i i
1995 1998 2001 2004 2007 2001 2004 2007
Time Time

Counterp art =WeeklyVI X Counterpart= WeeklyVIX

Window size =156, Lag # =5 Window size =156, Lag # =6

..-.--
. - .a= - -.. 1% -
--- ----- ----- - - --- - -X - -
N-------
- a=1%
x ------ ---a 5%
-- - - - - - - x--
- c-= 5%
xx
x X X
XX
X x
x
X~_ A
xAll Periods
x x
xA Periods
All Periods

x x

i i i I I
1995 1998 2001 2004 2007 1995 1998 2001 2004 2007
Time Time
 Counterp art = Monthly VI X Counterpart =MonthlyVI X
Window size =12, Lag # =1 Window size =12, Lag # =2

-a=1%
------- --- --- ---- -- ---- a=1%
X_ ---- x--------... . a=5% o05s a= 5%
x x E
x x X
a) u v
X x
x X X x x All Periods
a)
o
1~1_ u
X SXAII Periods x X

-05

---- -- --
'd
O
L .-
1991 2003 1999 2003
Time Time
Counterp art = Monthl yVi X Counterpart =Monthly VI X
Window size =12, Lag # =3 Window size =12, Lag # =4
1

------ 1% -------------------------
-- - - - - - - - - - - - - - - - - - 0=5%
a=1%
------------------------ 0=5%
O©cD
9o-
0.5 - '
x
N x
------
x
- - - - All Periods
x x Aerosvu
YllrrilA
si~
Pleriods

N
x x -N xN - xN x
-0.5 1..
NM -0.5 -
-..

199 200 20
195 1999 2003 1995 2003 2007
II Time
Time
Counterpart =MonthlyVI X Counterpart = Monthly VI X
Window size =12, Lag # =5 Window size =12, Lag # =6
CD
'-1
0= 1%
-a=1% ------------------ ------- ------- a=1%
0.5 -
---------- -------------- a= 5%
0.5 - xS - - - - - - - - - - - - - - - - - a= 5%
x x x
x x x S x x - x All Periods
V . i
All Periods
x x x x
X X X
-0.5 - ------------ _________ _ _______
NI-
------- x_ .
-0.5 -
--- 0! 200 2001
2003 2007 2003 2007
Time Time

.- - - . - - - - . . .
 Counterp art =Monthly V X Counterpart =Monthly VI X
Window size =36, Lag # =1 "'
Window size =36, Lag # =2
U.5
-----------
-- =1% --------
----------------- =-------
1%

x -x - -•- - - - - - - - - - = 5% ------------
--- --- --- -------------x - ---------cr==5% 5%
X X X X x xx x x S Periods
- ---- -xAll Periods × xAIl Periods

rD
HI
I # I i I
1995 1998 2001 2004 2007 1995 1998 2001 2004 2007
Time Time
C
Counterpart =Monlhly VI X Counterpart =MonthlyVI X
Window size =36, Lag # =3 Window size =36, Lag # =4
f0.,c
... .=1%
,

----- a=1%
- - - - -- --- --- -- - - a = 5% -- - - a=5%
X x v
x x 00
w -d

All Periods X x -- ---

-- -- 0 All Periods
C-

0
L) X
CII
oCD i I i I I
1995 1998 2001 2004 2007 1995 1998 2001 2004 2007

II Time Time
Counterpart =Monthly VI X Counterpart =MonthllyVl X
Window size =36, Lag # =5 Window size =36, Lag # =6
CD n.Jr
------ a=1%
,

----- a=1%
..... .-----------.- -- ---- a= 5% - -- a=5%

'C X ,

X x 'C X
0
x x X X v x All Periods
5

x"'
LIIIYYI
PIIA
i
)rlC
d

I
1995 1998 2001 2004 2007 1995 1998 2001 2004 2007
Time Time
 Counterpart =QuarterlyVIX Counterpart =Quarterly VI X
Window size =12, Lag # =1 Window size =12, Lag # =2

x-------- --- =1% ------------------- a=1%

1-
0.5 - X - - ---
- - ------- - = 5% 0

.
5
- ------------------------- a=5%

x
a)
X l
erios
o"cr''~"'~ os

0 0
X X
8 •11 IC IV•
IIl
X X
0 X lA
eriods
Pl

-0.5 X
... ..-... .- -. . ..
. .-.... -.... -.
E-

o>CD 8
o

CdI
1995 1998 2001 2004 2007 1995 1998 2001 2004 2007
Time Time
Counterp art =Ouartery VI X Counterpart =QuarterlyVI X
Window size =12, Lag # =3 Window size =12, Lag # =4

COD -------------------
--------------------
a=1% -- - - - - - -
x-------------------
----
---- - - - - - - -- - - ----
- a= 1%
O
© '----- a=5% s
-= 5%
o
E

(D
S x Xx
x
All Periods SX
~~II I1(ds
8 0
x ;,ý11 I P
A

'1eri
N
iod

- - - - - - - - - - - - - - - - - -- - -- - - - -- o
00
0-
O I I | I I
1998 2001 2004 2007 1995 1998 2001
Time Time
Counterpart =QuarterlyVI X Counterpart =Quarterly VI X
Window size =12, Lag # =5 Window size =12, Lag # =6

S--- a=1%
-••=5% -- a= 1%
S ----- ------------- a= 5% -- a= 5%
X x
a)
X x X X

8
All Periods x
S X

x
x 'C'
X A X RAII Periods(*)
-0.5 - X
o
8
| I i I I I I I I I
1998 2001 2004 2007 1995 1998 2001 2004 2007
Time Time
 Counterpart =QuarterlyVIX Counterpart =QuarterlyVIX
Window size =20, Lag # =1 Window size =20, Lag # =2
0.6 -------
= 1%
--- =5%
--- -x - -
-x----- ----- X-------------- a•= 5% 02
r r
m
A
0.2 All Periods Kx X Iii •^,1
0 8 -0.2 AllPeriods
-~~--~ ~-

8• 0
~ -02I -
o 0 04
0
iI i i
-s x I
2003 2005 2007 P999 2003
Time Time
5
Counterpart = Quartely VIX Counterpart =OuartelyVI X
Window size =20, Lag # =3 Window size =20, Lag # =4
CD ------ -------------- a=1% --- a=1%
- - ---------- ----- ------- -- -- - -, = 5% S- - =- 5%
02
X
0
x X- AIProd
YII T~I id--·
P 11111_~~
,,-- All -0.2 All Periods
r
-0.4 K
- -- - -- - - -
-0 6 .
1 I I I
2003 2005 2007 ro999 2001 2003 2005 21
Time Time
II -0.
Counterpart =Quarterly VI X Counterpart =Quarterly VIX
Window size =20, Lag # =5 Window size =20, Lag # =6
0b
0. a=1% - - ------ - -- - - - - - --- o=1%
04 -7 ---- -%--------------- 0.4 - ------ ---- --- - -- - --- --- - - --- x= 5%
C,,
)
0.2 0.2-

E 0
0
--------- All Periods 0 -
8-0.2 2
-0.
0 K.......
x_.. ._..-x---------- X ..... All Periods(*)
1 -0.4 --

o -0.6
-0 l. i np[I
•11 I I I I I

99
q 2001 2003 2007 'o999 2001 2003 2005 2007
Time Time
 Counterpart =YearlyV IX Counterpart =YearlyVI X
Window size =5, Lag # =1 Window size =5, Lag # =2

09
oqcD
X-- - -- ' - -- - - - All Periods

All Periods
x x x x x
CD 0-
'-1>
o-
1999 2001 2003 2005 2007 1999 2001 2003 2005 2007
Time Time

CCO Counterpart =YearlyVI X

0-' oq
"
Counterpart =YearlyVIX
Window size =5, Lag # =3 Window size =5, Lag # =4

x 0.8
o
0.6
IIC •
0.4
Z
02
01< *0
a) 0
8
-0.2
0
-0 4
~L------~-
All Periods o - All Periods
cD C) -0.6
x.
..
x''-- xC ,- = - - T---- 1 -0.8
r . . "'
-1
1999 2001 2003 2005 2007 1999 2001 2003 2005 2007
Time Time
A.7 Correlation Analysis between the S&P 500

Stock Index Returns and the Change of the

CBOE Volatility Index

188
 Counterpart =DailyReturn of VI X Counterpart =DailyReturn of VI X
Window size =252, Lag # =1 Window size =252, Lag # =2
x
S- - - - - - - - - - -- -- - - -- -- -- -- = 5% a= 5%
x
X x x
xAll Periods
.________L ------
Y
X%
__
A All Periods x x x
X X X SX
X X
-0.1 -0.1 C-
- -x---------- ------------------
I-I I I
CD
Cd I

1999
I

2003
i ! | I I
1999 2003 2007
0 Time Time
II Counterpart =DailyReturn of VI X Counterpart =DailyReturn of VIX
Window size =252, Lag # =3 Window size =252, Lag # =4
-a=1% ......
.... ----------- ------ a=5%
tzý x - a=5% ---
------x------------ ---- a=c =5%
x x

b X x x
CIO 0 X X
All Periods MM
x-
x x #X~-- L ~ ----- All Periods
X X x
-0.1I -0.1 (.

- ---- --- - - X -X- --

I I I I |
1995 1999 2003 2007 1999 2003 2007
II Time Time
'-< Counterpart =DailyReturn of VIX Counterpart =DailyRelurn of VIX
Window size =252, Lag # =5 Window size =252, Lag # =6
o=1% --
S-= 5% - - -x- - -.....- - - - - - .- - -..----
- --- - - - - - a=5%
-= 5%
X x x X X X C
x
All Periods(**) t x X X
a( 0
X x ( x x All Periods
Periods
8
0
8
0 -0.1
-0.1 E

o-
0-
I I I I I
-0.2 . I. ... I.... I - I J
1999 2003 2007 1999 2003 2007
Time Time
 Counterpart =DailyReturn of VIX Counterpart =DailyReurn of VIX
Window size =756, Lag # =1 Window size =756, Lag # =2
---- --- - -- xa=1% ----- --- ---- a=1%
Xa= 5% - - - - - - - - - - - - - - - - - - -- -- c=5%
0.05 0.05 - x x x x
p

X K L· x x
All Periods
0 -
.. K K x x
x x -0.05
-0.05 W
1-

-" - - - - - - - - - - - - - - - - - - -

cD
| I [ -- -
1995 1998 2001 2004 2007 1998 2001 2004 2007
Time Time

SII Counterpart =DailyReturn of VIX Counterpart =DallyReturn of VIX

Window size =756, Lag # =3 Window size =756, Lag # =4
- = 1% 0. I -

S - = 1%
- ----- ------- a= 5% K
a=5%
Sx X 0.05
xx
K
X
All Periods
X
CO CD SX
x xXAll Periods
x X
-0.05 - -0.05 X X

CD I ! I I I

1995 1998 2001 2004 2007 1995 1998 2001 2004 2007
rn Time Time

Counterpart =DailyReturn of VIX Counterpart =DailyReurn of VIX

Window size =756, Lag # =5 Window size =756, Lag # =6
. .- . .a=1% -- - -- - -- =1%
-- - - -- - ------- --- = 5% x x
L_ __
xx All Periods(**) 0.05 -

-3 X x x ---- All Periods

-xx x
a) 0 -
x ·o

-0.05 -0.05 -
o0 -
I- -. cI -- -- -- ---

-0 1 i
1995
I
1998 2001
II
2004 2007 1995 1998 2001 2004 2007 -
Time Time
 Counterpart =WeeklyReturn of VIX Counterpart =WeeklyReturn of VIX
Window size =52, Lag # =1 Window size =52, Lag # =2
1% -=
------ - ----- --- ----- ---- a= 5%
x
------------
- -=1%=------
- - - - - - - - - - - X ---------------- - -- -- - a=5%
- - - - - x ----------- Prd(%
0 0.2 - x X
8 x x xxAll Periods(M) X
8 0 x ---- ---
x
All Periods
Xxx
x x
o -0.2
-0.2 -
0
JP-) ý
hi
I I I I I
I~ ___
•
____
1995 1999 2003 2007 1999 2003
Time Time
cD
o Counterpart =WeeklyReturn of VIX Counterpart =WeeklyReturn of VI X
Window size =52, Lag # =3 t•A
Window size =52, Lag # =4
.c.. u. -
cD = 1% .--- ----------.----- a=1%
- - - - - - - - - - - - - - - - - - - - - - - - - = 5% --- - -- a=5%
0.2- 0.2
X
x XX X
x xX
x X X-XAll Periods 0 All Periods
x
ICX X
-0.2 -0.2
- - - -
- - - - - - - - - - - - - - - - - - - - - - ---

1999
-0.4 ---
-- ---
- ... . -- ---- --
2003 1999 2003 2007
II
'-c
Time Time
Counterpart =WeeklyReurn of VIX Counterpart =WeeklyRetumrn of VIX
hi Window size =52, Lag # =5 Window size =52, Lag # =6
- ------ =1%
0.4- ---- ----- ----------- ---- a=5%
- -X- - - ------
- -------- a= 5% X X X
0.2 - x x X X x
All Periods
S0 x X
80 - X All Periods
Sx X x

E -0.2 - -0.2 -
o
x x x
OC - - I--------------------- I ------------
I I - I I
1999 2003 2007 1999 2003
Time Time
 Counterpart =WeeklyReturn of VI X Counterpart =WeeklyReturn of VI X
Window size =156, Lag # =1 ^"
Window size =156, Lag # =2
U.j r

- - - - -- - - - -- - - - - -- - =%
x x
------------- -- -- =1%
X
X x x ~~~ _ __ ~ ~X ~ I ··I·Periods
A
AllI
xX X x x

I I | I
I I I I
1995 1998 2001 2004 2007 1998 2001 2004

Time Time
CD
Counterpart = WeeklyReturn of VIX Counterpart =WVVeeklyReturn of VIX
Window size =156, Lag # =3 Window size =156, Lag # =4
cD
0.2 - . =1%
--= 5% - - - - -- -- - -- -- - - - - - --- - -- - - - =5%
0.1
x x .. x
x
XAll Periods i; __ All Periods
0 X X
x
8-0.1 X X X x x x -I 2x x
rz
-0.2
o ...... ---- .....
o -03
0
I iIii
1995 1998 2001 2004 2007 2001 2004 2007

Time Time
II
Counterpart =WeeklyReturn of VI X Counterpart =WeeklyReturn of VIX
cD3 Window size =156, Lag # =5 Window size =156, Lag # =6
Ut
PD 0. r

-- ----- -------
-a= % 0.2 ---
---- X-~
----------------~ 01
r
x
8) 0
x
S--
X X
x
X
All Periods
S-xAll Periods , 0
o x X x x
• _n x x x
xx 8 -01
- .
., I
---------- *--------------- 0
O
W -0.2 - -------------- -- -. S-02
S-0.3
S-0.3
I I I -0 4 20 00
1995 1998 2007
1995 1998 2001 2004 2007
4 002

Time Time

- - - - - - - - 0-
 Counterpart =MonthlyReturn of VI X Counterpart =MonthlyReturn of VIX
Window size =12, Lag # =1 Window size =12, Lag # =2
---- - a=5%
=1%
x.----------------- -- a==1%
5% -- --- -- ------------- x
05 - x - 0.5- x -x

x
X v m_
_ __ x
Sx " X-- xAll Periods
lA
ds
oirePl

x x
X
x x
-0.5 - X -0.5 -
2d
CD
L L I I i

1991 1995 1999 2003 2007 1999 2003

Time Time
II Counterpart =Monthly Return of VI X Counterpart =MonthlyReurn of VI X
Window size =12, Lag # =3 Window size =12, Lag # =4
0
---- -------- --- a=1% -=1%
---- ------------------------- 5%
----------------------- a=5%
0.5 [- x x
x x xx X X
x x v x
Y" CCI IIIII~
X X All Periods
x X X X
Pl
lA
eriods
x x
CD~
XC

-0.5 -
I | | I I
1999 2003 2007 1995 1999 2003 2007
Time Time
II Counterpart =MonthlyReturn of VI X Counterpart =MonthlyReturn of VI X
Window size =12, Lag # =5 Window size =12, Lag # =6
CD

--------------------- a= 1% -------------------- = 1%
- - - - - - -- - - - - - - - - - - - - - - -- a= 5% 0.5 x
'C -=5%
k

x x x
0
S0 x x x X x X
All Periods
' +-4 C
' QlI---- i d
PPI II r x x
x X X

r -0.5
o - ----------- --- -----------------
- --X--
-- -- -..-
X
I i I 1 I
1999 2007 1995 1999 2003 2007
Time Time
 Counterpart =MonthlyReturn of VI X Counterpart =MonthlyReturn of VIX
Window size =36, Lag # =1 Window size =36, Lag # =2
- a=1%
---- a=5%
x------- ------------
n
5
x a=5%
X x
-A - r o s
t-'•ll r--•'l IV'dO
lA
Pl
i

x X x X C CII I] x X X X
- × A , 1. eriods
P1

CD --- -- -- -- --- -- -- --

1995 1998 2001 2004 2007 1995 1998 2001 2004 2007
Time Time
II
Counterpart =MonthlyReturn of VIX Counterpart =MonthlyRelurn of VIX
0
Window size =36, Lag # =3 Window size =36, Lag # =4
0 5
.------ ----
7

a=1% - a= 1%
------------- ,=5% -- ---- --------- - - = 5%
xx x x

X x X X
X
IC _I _ X
-- All Periods
All Periods

------ --------*-,
*------
- - - - - - - - - - - - - - - - - - -

1995 1998 2001 2004 2007 1998 2001 2004 2007

Time Time
on Counterpart =Monfhly Return of VIX Counterpart =MonthlyReturn of Vi X
Window size =36, Lag # =5 Window size =36, Lag # =6
-- o1%
a= - ----
....- .. - -. - a= 1%
- -- --- --------- a=5% - ---------- -- - - - a=5%
x
IC X
IC

- X xA X -- XAII Periods
All Periods
X
-- X

- - - - ------
. . . . - -. . . .
I I I I I I I I
I I
1995 1998 2001 2004 2007 1995 1998 2001 2004 2007
Time Time
 x

Counterpart =QuarterlyReturn of Vl X Counterpart = QuarterlyRefurn of VI X

Window size =12, Lag # =1 Window size =12, Lag # =2

c-=1% -.----------------- a=1%

- --- ----- - -- - -- a= 5% - -- a=5%
I\ n
VY
V ~~~~YY~~~~~~C-~~~ nr
W

xxx
x X X
X '
S x x - x X , AIIPeriods
xC
0
-0-5

o
"""
1995 1998 1995 1998 2001 2004 2007
Od 1 002 2004
2007

Time Time
C- ©
Counterpart =QuarterlyReturn of VI X Counterpart =QuarterlyRelurn of VIX
Window size =12, Lag # =3 Window size =12, Lag # =4
CO ------------------- •a=1%
- - --------
- ---------- - ---- -- -- --
--
---- --a=
--- a=
5%
15%
0.5 -- K= 5%
p

x x xx
x x
------ - ---- All Periods
S A
X
-
~II vurlrlrlc-
All
P
i d

s
ero

X
-0.5 C -0.5 p
------------------------
. .. . . .. . .. .. - - . . .. . .. .

C) i i I I I
1995 1998 2001 2004 2007 2001 2004 2007
Time Time
Counterpart =QuarterlyRetumrn of VI X Counterpart =QuartedyReturn of Vi X
Window size =12, Lag # =5 Window size =12, Lag # =6

-a=1% -- -- ------------- a=1%

----------- --- a=5% S- -= 5%
0<•-
XX X 'X x X Periods(**)
All
X x X X X
X x
iAll Periods
X '
-0.5 C- -0.5 W
Sx Cx X x

. •1.... I.... I=. I I i I I I I

1998 2001 2004 2007 1998 2001 2004 2007
Time Time
 Counterpart =QuartedyfReturn of VIX Counterpart =QuarterlyReturn of VIX
Window size =20, Lag # =1 Window size =20, Lag # =2
0.6 -- a= 1%
0.4 tX _ ---------- --
----
-----_ o=5%
XAll Periods(*)
------- ---------- - - -------- a= 5%
E 0.2 -X X X X
0 .. ~~~ K - x .- _IAl
Periods
AllDPoriA dls

9 -0.2 -
S-0.4

CD S-0.6
- - ---- ----
- - -X
0
I !i 1
-0 0 I
'9§9 2003 -0.99 2001 2003 2007
A_

II Time PS Time
Counterpart =0uarterlyReurn of VI X Counterpart =QuartedlyRetumrn of VI X
(0 Window size =20, Lag # =3 Window size =20, Lag # =4 1
0o
- --- a=1% - - - - - a= %
- - ---- ------ --------- =5% - - - - -- a= 5%

cD X
x
All Periods -a
8
x X
1• 0
-0-2 All Periods
CD 0 X X
-0.4 _x - - - - - - - -- - - - - - -- - - - -
0- o 0.6

-n o
9rss 2003 2005 -0
)9-
99 I
2001 2003
Time Time
II Counterpart =OuarterlyReturn ofVI X Counterpart =QuarterlyReturn of VI X
Window size =20, Lag # =5 Window size =20, Lag # =6
CD -=1%x - ----- - ---- - 1%
--_--_--.. - - - -- -- - - - - - ---- ------
-- - di-1 dS(*) - -- - - - -- - -- a=5%
cc
X X
0.2
0 X x
All Periods
8 -0.2 -
-- -- -- -- X
- -- -- xxC
g -0.4

0 0.6 -
-0.8 I -I -f R I I I |

f999 2001 2003 2005 2007 Po999 2001 2003 2005

Time Time
 Counterpart =YearlyReturn of VI X Counterpart =Yearly Return of VIX
Window size =5, Lag # =1 Window size =5, Lag # =2
1
- ---- ---------- -- -- -- ----- a=
0.8
X
0.6 X X X
0.4 All Periods
0.2 x A II1",,r.i,,-.,.I."
X Y"rrl
· I· 11111~
YIIVUY
(D
'-1
8
C•
0 -0.2
v
-0.4 SX X
II O
cD

1999 2001 2003 2005 2007 1999 2001 2003 2005 2007
Time Time

--4 CD Counterpart =YeaflyReturn of VIX Counterpart =YeadlyReurn of VIX

Window size =5, Lag # =3 Window size =5, Lag # =4
C-
0
©

II

a)
X l P-riods,.
lA
.0
r.cD
Un YII rrl nlll-)

O All Periods
C-
x x

1999 2001 2003 2005 2007 1999 2001 2003 2005 2007
Time Time
THIS PAGE INTENTIONALLY LEFT BLANK

198
Appendix B

Detailed Performances of Strategy

Back-Tests

B.1 Performances of Individual Strategies

199
 Contrarian and Momentum: Contrarian/Momentum(period, 0)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Contrarian(daily) 0.2398 0.0335 0.0242 0.0304 -0.0277 0.0869 0.0958 -0.0296 0.19 0.006 0.0617
0d 0.1022 0.0717
Contrarian(weekly) 0.2025 0.1245 0.03 -0.0902 -0.1593 0.3059 0.0638 0.0483 0.1688
Contrarian(monthly) -0.0665 0.1386 0.0397 -0.1307 -0.1227 -0.0178 -0.0103 0.1391 0.0064 -0.0076 -0.007
Contrarian(yearly) 0 0 0 -0.1053 -0.2337 0.2638 -0.0031 0 0 0 -0.0145
Momentum(daily) 0.0217 0.1565 -0.1227 -0.1561 -0.2118 0.1628 -0.0054 0.0614 -0.0452 0.0291 -0.0183
Momentum(weekly) 0.0534 0.0629 -0.1276 -0.0442 -0.0884 -0.0323 0.0246 -0.0174 -0.0279 -0.0607 -0.0274
Momentum(monthly) 0.3569 0.0498 -0.1357 0.0003 -0.1265 0.2867 0.1013 -0.0958 0.1289 0.0432 0.0496
Momentum(yearly) 0.2667 0.1953 -0.1014 -0.028 0 0 0.0933 0.03 0. 1362 0.0353 0.0577
(0 0.0899 0.03 0.1362 0.0353 0.0423
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Sd Contrarian(daily) 0.1598 0.1308 0.1811 0.1697 0.2059 0.1149 0.0829 0.0713 0.0736 0.1206 0.1385
S Contrarian(weekly) 0.1247 0.124 0.1475 0.1558 0.2085 0.124 0.0709 0.0664 0.0794 0.1159 0.1284
Contrarian(monthly) 0.1497 0.1265 0.1797 0.1789 0.2214 0.1178 0.0601 0.0743 0.0523 0.1072 0.1375
Contrarian(yearly) 0 0 0 0.2134 0.2602 0.1711 0.0031 0 0 0 0.1194
0o Momentum(daily) 0.1254 0.1248 0.1281 0.1324 0.1591 0.1267 0.0736 0.0739 0.0683 0.1044 0.1154
Momentum(weekly) 0.1603 0.1315 0.1657 0.1485 0.1556 0.1179 0.0853 0.0783 0.0614 0.1097 0.1264
0 Momentum(monthly) 0.1372 0.1291 0.1301 0.1197 0.1366 0.124 0.0932 0.0708 0.0857 0.1182 0.1165
Momentum(yearly) 0.2031 0.1808 0.2218 0.0283 0 0 0.1108 0.1027 0.1004 0.1596 0.135
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Contrarian(daily) 1.5008 0.2559 0.1338 0.1794 -0.1346 0.7558 1.1559 -0.4153 2.581 0.0499 0.4878
Contrarian(weekly) 1.624 1.0041 0.2035 -0.5789 -0.764 2.4677 0.8998 0.7269 2.1253 0.8823 0.5671
0U Contrarian(monthly) -0.4442 1.0954 0.2211 -0.7304 -0.554 -0.1508 -0.1719 1.8716 0.123 -0.0705 -0.0554
Contrarian(yearly) NaN NaN NaN -0.4937 -0.898 1.5422 -1 NaN NaN NaN -0.115
Momentum(daily) 0.1729 1.2547 -0.9571 -1.1788 -1.3311 1.285 -0.0732 0.8315 -0.6616 0.2786 -0.1444
Momentum(weekly) 0.3329 0.4783 -0.77 -0.2977 -0.5682 -0.2737 0.2885 -0.2225 -0.4543 -0.5535 -0.2171
Momentum(monthly) 2.6008 0.3855 -1.0429 0.0024 -0.9259 2.3118 1.087 -1.352 1.5039 0.3655 0.3926
Momentum(yearly) 1.3129 1.0802 -0.457 -0.992 NaN NaN 0.842 0.2923 1.3565 0.2212 0.4561
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
ci:, Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Contrarian(daily) 0.44 0.49 0.52 0.51 0.56 0.45 0.44 0.44 0.44 0.45 0.48
Contrarian(weekly) 0.38 0.41 0.48 0.5 0.58 0.44 0.41 0.4 0.48 0.4 0.45
Contrarian(monthly) 0.25 0.43 0.69 0.49 0.59 0.33 0.25 0.49 0.17 0.34 0.4
Contrarian(yearly) 0 0 0 0.98 1 1 0 0 0 0 0.3
Momentum(daily) 0.56 0.51 0.48 0.47 0.44 0.55 0.56 0.56 0.56 0.54 0.52
Momentum(weekly) 0.62 0.59 0.52 0.48 0.42 0.56 0.59 0.6 0.51 0.59 0.55
Momentum(monthly) 0.75 0.57 0.31 0.49 0.41 0.67 0.75 0.51 0.83 0.65 0.59
Momentum(yearly) 1 1 1 0 0 0 1 1 1 1 0.7
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Contrarian(daily) 123 125 130 130 138 140 130 141 134 141 133.2
Contrarian(weekly) 23 26 25 27 21 25 22 23 30 27 24.9
Contrarian(monthly) 4 6 7 5 6 4 4 10 4 5 5.5
Contrarian(yearly) 0 0 0 1 0 0 1 0 0 0 0.2
Momentum(daily) 123 125 130 130 138 140 130 141 134 141 133.2
Momentum(weekly) 23 26 25 27 21 25 22 23 30 27 24.9
Momentum(monthly) 4 6 7 5 6 4 4 10 4 5 5.5
Momentum(yearly) 0 0 0 1 0 0 1 0 0 0 0.2
 Contrarian and Momentum on an Arbitrary Market Information Variable: Contrarian/Momentum(period, v, 0)
0
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Momentum(Chg. of VIX, weekly) 0.2903 0.1564 0.158 0.017 -0.2046 0.3058 0.0068 0.0043 0.1207 0.0643 0.0821
Contrarian(Chg. of Trad.Vol., weekly) 0.208 0.1599 0.0081 0.0463 0.0659 0.0881 0.0769 0.0304 0.1229 -0.0149 0.0772
Momentum(Chg. of VIX, quarterly) 0.4749 0.1443 -0.1115 0.0355 -0.0865 0.291 -0.0031 0.0183 0.0637 0.0308 0.0738
Momentum(Chg. of Trad.Vol., yearly) 0.2667 0.1953 -0.0095 -0.1053 0.0057 0.2232 -0.0031 0 0.1178 0.0353 0.0665
rcD
Momentum(Chg. of Rf-Rate, daily) 0.144 0.1177 0.12 0.0881 -0.1812 0.1639 0.1881 -0.0709 0.125 -0.0312 0.0597
Momentum(Chg. of VIX, daily) 0.2232 0.0894 0.072 -0.0357 -0.0869 0.1749 -0.0013 0.0193 0.1549 0.0029 0.0571
Momentum(Chg. of VIX, yearly) 0.2667 0.1953 -0.0095 -0.1053 0.0057 0.2232 -0.0031 0 0 0 0.0511
Contrarian(Chg. of VIX, monthly) 0.3414 0.0374 -0.0087 -0.0564 -0.1509 0.2762 0.0236 -0.0381 0.1034 0.047 0.0484
Momentum(Chg. of Rf-Rate, quarterly) 0.1365 0.1964 -0.0806 -0.028 -0.1552 0.092 0.0671 0.03 0.0665 0.0726 0.0349
D C)
O Contrarian(Chg. of Trad.Vol., daily) 0.2931 0.0229 -0.2096 0.082 -0.0646 0.1115 0.0038 0.0203 0.1192 0.0389 0.0343
Contrarian(Chg. of Trad.Vol., quarterly) 0.1365 0.2065 -0.0578 -0.0406 0.0362 -0.0243 0.0237 0.0197 0.1076 -0.0467 0.0328
Momentum(Chg. of Rf-Rate, monthly) 0.1639 0.0409 -0.0962 -0.0168 -0.0391 0.1392 0.0878 0.03 0.0724 -0.0378 0.0314
Contrarian(Chg. of Trad.Vol., monthly) 0.2461 0.1754 0.0191 -0.1517 -0.1825 0.1266 0.0593 -0.0592 0.0878 0.0671 0.0304
Contrarian(Chg. of Rf-Rate, weekly) 0.1865 0.0132 -0.0551 -0.0093 -0.1789 0.0879 0.0263 -0.0027 0.0994 0.1585 0.0274
Contrarian(Chg. of Rf-Rate, yearly) 0 0.1964 -0.0095 0 -0.238 0.2638 0.0899 -0.0081 0 0 0.0212
Momentum(Chg. of Rf-Rate, yearly) 0.2667 -0.0009 -0.0927 -0.1304 0.0057 0 0 0.0384 0.1362 0.0353 0.0206
Momentum(Chg. of Rf-Rate, weekly) 0.0675 0.1797 -0.049 -0.1223 -0.0667 0.1617 0.062 0.0328 0.0335 -0.1063 0.0145
Momentum(Chg. of Trad.Vol., monthly) 0.0165 0.0169 -0.1182 0.0251 -0.0625 0.1218 0.0289 0.0948 0.0445 -0.0298 0.0115
C
~ Contrarian(Chg. of Rf-Rate, monthly) 0.0884 0.1483 -0.0058 -0.1156 -0.2025 0.1094 0.0019 0 0.0595 0.076 0.0105
Momentum(Chg. of Trad.Vol., quarterly) 0.1145 -0.0093 -0.0463 -0.0937 -0.2605 0.2952 0.0647 0.0101 0.0258 0.086 0.0091
C-.- Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
(D
cD Momentum(Chg. of VIX, weekly) 0.132 0.1265 0.1703 0.1642 0.2107 0.121 0.0816 0.0731 0.0781 0.1199 0.1345
Contrarian(Chg. of Trad.Vol., weekly) 0.1511 0.1369 0.1687 0.1447 0.2031 0.1208 0.0803 0.0734 0.0688 0.1119 0.1326
Momentum(Chg. of VIX, quarterly) 0.1378 0.0859 0.1726 0.1842 0.2245 0.105 0.0031 0.0565 0.0656 0.1481 0.1345
CD
Momentum(Chg. of Trad.Vol., yearly) 0.2031 0.1808 0.0095 0.2134 0.0057 0.1678 0.0031 0 0.099 0.1596 0.1353
Momentum(Chg. of Rf-Rate, daily) 0.1368 0.1408 0.1701 0.1372 0.21 0.1387 0.0921 0.0886 0.0814 0.1046 0.1355
Momentum(Chg. of VIX, daily) 0.1618 0.1298 0.1809 0.1682 0.1945 0.1194 0.0828 0.074 0.073 0.124 0.1375
Momentum(Chg. of VIX, yearly) 0.2031 0.1808 0.0095 0.2134 0.0057 0.1678 0.0031 0 0 0 0.1216
Contrarian(Chg. of VEX, monthly) 0.1311 0.1088 0.1323 0.1242 0.1342 0.1369 0.0813 0.0753 0.0683 0.0921 0.1114
CD Momentum(Chg. of Rf-Rate, quarterly) 0.0683 0.1808 0.2112 0.0283 0.1029 0.0522 0.0933 0.1027 0.0932 0.08 0.1142
Contrarian(Chg. of Trad.Vol., daily) 0.1389 0.1141 0.146 0.1479 0.2016 0.1136 0.0752 0.0742 0.0748 0.1162 0.1262
Contrarian(Chg. of Trad.Vol., quarterly) 0.0683 0.1321 0.1704 0.1495 0.1544 0.1184 0.0815 0.0853 0.0598 0.1143 0.1191
Momentum(Chg. of Rf-Rate, monthly) 0.108 0.1367 0.1755 0.0535 0.1311 0.1126 0.1015 0.1027 0.0935 0.1269 0.1181
Contrarian(Chg. of Trad.Vol., monthly) 0.154 0.0978 0.1384 0.1718 0.1843 0.1241 0.079 0.0639 0.0552 0.0733 0.1225
Contrarian(Chg. of Rf-Rate, weekly) 0.1526 0.1211 0.1424 0.1719 0.1637 0.1151 0.0526 0.0468 0.0556 0.1152 0.1221
Contrarian(Chg. of Rf-Rate, yearly) 0 0.1808 0.0095 0 0.2601 0.1711 0.1109 0.0081 0 0 0.1192
Momentum(Chg. of Rf-Rate, yearly) 0.2031 0.0009 0.2216 0.2153 0.0057 0 0 0.1023 0.1004 0.1596 0.1352
Momentum(Chg. of Rf-Rate, weekly) 0.1341 0.1342 0.1701 0.1295 0.2022 0.1266 0.0976 0.0914 0.0836 0.1104 0.1326
Momentum(Chg. of Trad.Vol., monthly) 0.1325 0.152 0.1733 0.1296 0.1836 0.1178 0.0778 0.0804 0.0839 0.1417 0.1322
Contrarian(Chg. of Rf-Rate, monthly) 0.172 0.1182 0.1358 0.2085 0.2247 0.1288 0.0446 0 0.0367 0.0967 0.1361
CD Momentum(Chg. of Trad.Vol., quarterly) 0.1913 0.1234 0.142
0- c,~ 0.1549 0.2094 0.1235 0.0752 0.0571 0.0807 0.1113 0.1352
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Contrarian and Momentum on an Arbitrary Market Information Variable: Contrarian/Momentum(period, v, 0)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Momentum(Chg. of VIX, weekly) 2.1988 1.2367 0.9276 0.1035 -0.9711 2.528 0.0831 0.0585 1.5446 0.5361 0.6842
Contrarian(Chg. of Trad.Vol., weekly) 1.3763 1.1686 0.0481 0.3201 0.3245 0.7292 0.9573 0.4141 1.7847 -0.1332 0.6436
Momentum(Chg. of VIX, quarterly) 3.4467 1.6796 -0.6461 0.1927 -0.3853 2.771 -1 0.3249 0.9715 0.2077 0.6152
Momentum(Chg. of Trad.Vol., yearly) 1.3129 1.0802 -1 -0.4937 1 1.3301 -1 NaN 1.1896 0.2212 0.5544
Momentum(Chg. of Rf-Rate, daily) 1.0523 0.8358 0.7056 0.6423 -0.8627 1.1818 2.0427 -0.8008 1.535 -0.2985 0.4979
Momentum(Chg. of VIX, daily) 1.3792 0.6887 0.3981 -0.2122 -0.447 1.4654 -0.0157 0.2602 2.1221 0.0232 0.4758
Momentum(Chg. of VIX, yearly) 1.3129 1.0802 -1 -0.4937 1 1.3301 -1 NaN NaN NaN 0.4255
Contrarian(Chg. of VIX, monthly) 2.6041 0.3435 -0.0659 -0.454 -1.1246 2.0173 0.2897 -0.5061 1.5143 0.5103 0.4034
Momentum(Chg. of Rf-Rate, quarterly) 1.9979 1.0863 -0.3813 -0.992 -1.508 1.764 0.7196 0.2923 0.7136 0.9072 0.2911
Contrarian(Chg. of Trad.Vol., daily) 2.1104 0.2011 -1.4358 0.5543 -0.3204 0.9814 0.05 0.2733 1.5948 0.3349 0.2856
Contrarian(Chg. of Trad.Vol., quarterly) 1.9979 1.5638 -0.3389 -0.2714 0.2347 -0.2049 0.2908 0.2312 1.7998 -0.4084 0.2738
Momentum(Chg. of Rf-Rate, monthly) 1.5174 0.2991 -0.5481 -0.3144 -0.2983 1.2364 0.8653 0.2923 0.7751 -0.2977 0.2619
Contrarian(Chg. of Trad.Vol., monthly) 1.5983 1.7941 0.138 -0.8828 -0.9903 1.0202 0.7509 -0.927 1.5906 0.9151 0.2533
Contrarian(Chg. of Rf-Rate, weekly) 1.2225 0.1092 -0.3868 -0.054 -1.0926 0.7636 0.5009 -0.0585 1.7876 1.3756 0.2285
Contrarian(Chg. of Rf-Rate, yearly) NaN 1.0863 -1 NaN -0.9151 1.5422 0.8112 -1 NaN NaN 0.1768
Momentum(Chg. of Rf-Rate, yearly) 1.3129 -1 -0.4184 -0.6059 1 NaN NaN 0.3757 1.3565 0.2212 0.172
Momentum(Chg. of Rf-Rate, weekly) 0.5038 1.3383 -0.2882 -0.944 -0.33 1.2778 0.6348 0.3595 0.4004 -0.9629 0.1206
Momentum(Chg. of Trad.Vol., monthly) 0.1245 0.1111 -0.6821 0.1935 -0.3405 1.0344 0.3714 1.1801 0.5302 -0.2104 0.0962
Contrarian(Chg. of Rf-Rate, monthly) 0.5135 1.2543 -0.0426 -0.5542 -0.9009 0.8493 0.0433 NaN 1.6198 0.7856 0.0878
CD
8 Momentum(Chg. of Trad.Vol., quarterly) 0.5988 -0.0757 -0.3261 -0.6047 -1.2437 2.391 0.8605 0.1767 0.3201 0.7723 0.0762
t•
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Momentum(Chg. of VIX, weekly) 0.51 0.47 0.5 0.38 0.54 0.43 0.48 0.48 0.46 0.52 0.48
Contrarian(Chg. of Trad.Vol., weekly) 0.47 0.54 0.46 0.49 0.53 0.5 0.52 0.47 0.44 0.52 0.49
Momentum(Chg. of VIX, quarterly) 0.75 0.25 0.5 0.75 0.51 0.5 0 0.25 0.5 0.75 0.48
Momentum(Chg. of Trad.Vol., yearly) 1 1 0 0.98 0 1 0 0 1 1 0.6
Momentum(Chg. of Rf-Rate, daily) 0.53 0.59 0.6 0.46 0.62 0.66 0.71 0.7 0.66 0.56 0.61
Momentum(Chg. of VIX, daily) 0.47 0.5 0.5 0.45 0.51 0.47 0.43 0.46 0.49 0.48 0.48
Momentum(Chg. of VIX, yearly) 1 1 0 0.98 0 1 0 0 0 0 0.4
Contrarian(Chg. of VIX, monthly) 0.66 0.41 0.42 0.49 0.49 0.58 0.59 0.59 0.58 0.49 0.53
Momentum(Chg. of Rf-Rate, quarterly) 0.24 1 0.75 0 0.25 0.25 0.75 1 0.75 0.49 0.55
Contrarian(Chg. of Trad.Vol., daily) 0.51 0.48 0.5 0.47 0.5 0.53 0.48 0.48 0.53 0.48 0.5
Contrarian(Chg. of Trad.Vol., quarterly) 0.24 0.5 0.5 0.5 0.49 0.24 0.5 0.75 0.5 0.5 0.47
Momentum(Chg. of Rf-Rate, monthly) 0.43 0.67 0.66 0.08 0.33 0.41 0.84 1 0.75 0.5 0.57
Contrarian(Chg. of Trad.Vol., monthly) 0.51 0.35 0.42 0.65 0.66 0.5 0.43 0.42 0.42 0.32 0.47
Contrarian(Chg. of Rf-Rate, weekly) 0.47 0.44 0.42 0.71 0.46 0.48 0.2 0.23 0.39 0.48 0.43
Contrarian(Chg. of Rf-Rate, yearly) 0 1 0 0 1 1 1 0 0 0 0.4
Momentum(Chg. of Rf-Rate, yearly) 1 0 1 0.98 0 0 0 1 1 1 0.6
Momentum(Chg. of Rf-Rate, weekly) 0.53 0.56 0.58 0.27 0.54 0.52 0.8 0.77 0.61 0.51 0.57
Momentum(Chg. of Trad.Vol., monthly) 0.49 0.65 0.58 0.33 0.34 0.5 0.57 0.58 0.58 0.68 0.53
Contrarian(Chg. of Rf-Rate, monthly) 0.57 0.33 0.34 0.9 0.67 0.59 0.16 0 0.25 0.5 0.43
Momentum(Chg. of Trad.Vol., quarterly) 0.76 0.5 0.5 0.48 0.51 0.76 0.5 0.25 0.5 0.5 0.53
 0

Contrarian and Momentum on an Arbitrary Market Information Variable: Contrarian/Momentum(period, v, 0)

Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Momentum(Chg. of VIX, weekly) 32 32 33 21 25 34 26 30 30 33 29.6
N) t-I
Contrarian(Chg. of Trad.Vol., weekly) 40 36 28 28 28 34 34 38 32 34 33.2
CC Momentum(Chg . of VIX, quarterly) 2 2 4 2 2 4 1 2 4 1 2.4
cy
Momentum(Chg. of Trad.Vol., yearly) 0 0 1 1 1 1 1 0 1 0 0.6
Momentum(Chg. of Rf-Rate, daily) 112 100 113 115 115 104 105 113 106 126 110.9
Momentum(Chg. of VIX, daily) 121 132 127 116 129 132 122 132 134 140 128.5
Momentum(Chg. of VIX, yearly) 0 0 1 1 1 1 1 0 0 0 0.5
Contrarian(Chg. of VIX, monthly) 6 9 8 5 6 7 7 8 6 7 6.9
Momentum(Chg. of Rf-Rate, quarterly) 2 1 2 1 2 1 2 0 1 2 1.4
Contrarian(Chg. of Trad.Vol., daily) 144 145 126 127 144 149 144 148 146 143 141.6
Contrarian(Chg. of Trad.Vol., quarterly) 2 3 2 2 2 1 4 3 2 2 2.3
Momentum(Chg. of Rf-Rate, monthly) 6 8 5 2 4 8 5 0 3 6 4.7
Contrarian(Chg. of Trad.Vol., monthly) 8 8 6 8 8 8 9 9 5 8 7.7
Contrarian(Chg. of Rf-Rate, weekly) 29 33 18 26 29 22 22 20 20 24 24.3
Contrarian(Chg. of Rf-Rate, yearly) 0 1 1 0 1 0 0 1 0 0 0.4
Momentum(Chg. of Rf-Rate, yearly) 0 1 1 0 1 0 0 1 0 0 0.4
Momentum(Chg. of Rf-Rate, weekly) 29 33 18 26 29 22 22 20 20 24 24.3
Momentum(Chg. of Trad.Vol., monthly) 8 8 6 8 8 8 9 9 5 8 7.7
Contrarian(Chg. of Rf-Rate, monthly) 6 8 5 2 4 8 5 0 3 6 4.7
Momentum(Chg. of Trad.Vol., quarterly) 2 3 2 2 2 1 4 3 2 2 2.3
0c
0
O'q
 Moving Average Convergence Diver ence: MAC (ShortWindowSize, LongWindowSize, 8)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
MACD(25, 280, 0.02) 0.2667 0.1953 -0.0279 0 0 0.1499 0.0899 0.03 0.1362 0.0353 0.0837
MACD(20, 240, 0.04) 0.2667 0.1953 -0.0867 0 0 0.1915 0.0899 0.03 0.1362 0.0353 0.0808
MACD(15, 260, 0.04) 0.2667 0.1953 -0.061 0 0 0.1539 0.0899 0.03 0.1362 0.0353 0.0804
(D
(D
MACD(30, 300, 0.02) 0.2667 0.1953 -0.0541 0 0 0.129 0.0899 0.03 0.1362 0.0353 0.0788
MACD(20, 200, 0.06) 0.2667 0.1953 -0.0676 0 0 0.1445 0.0899 0.03 0.1362 0.0353 0.0787
CD MACD(50, 260, 0.06) 0.2667 0.1953 -0.1014 0.0333 0 0.141 0.0899 0.03 0.1362 0.0353 0.078
'--1 MACD(25, 300, 0.02) 0.2667 0.1953 -0.0703 0 0 0.1393 0.0899 0.03 0.1362 0.0353 0.0779
MACD(45, 160, 0.02) 0.1428 0.1953 -0.0254 0 0 0.2041 0.0899 0.03 0.1362 0.0353 0.0779
MACD(20, 300, 0.02) 0.2667 0.1953 -0.061 0 0 0.1257 0.0899 0.03 0.1362 0.0353 0.0777
MACD(15, 220, 0.06) 0.2667 0.1953 -0.0982 0 0 0.1709 0.0899 0.03 0.1362 0.0353 0.0776
MACD(40, 280, 0.02) 0.2667 0.1953 -0.0691 0 0 0.129 0.0899 0.03 0.1362 0.0353 0.0771
MACD(50, 240, 0.06) 0.2667 0.1953 -0.1014 0.0333 0 0.1306 0.0899 0.03 0.1362 0.0353 0.077
MACD(20, 260, 0.02) 0.1576 0.1953 -0.05 0 0 0.209 0.0899 0.03 0.1362 0.0353 0.0769
MACD(45, 280, 0.04) 0.2667 0.1953 -0.0606 0 0 0.1167 0.0899 0.03 0.1362 0.0353 0.0769
MACD(50, 300, 0.06) 0.2667 0.1953 -0.1014 0.0304 0 0.1326 0.0899 0.03 0.1362 0.0353 0.0768
MACD(25, 220, 0.02) 0.1853 0.1953 -0.0492 0 0 0.1765 0.0899 0.03 0.1362 0.0353 0.0766
MACD(25, 240, 0.04) 0.2667 0.1953 -0.105 0 0 0.1665 0.0899 0.03 0.1362 0.0353 0.0764
MACD(45, 220, 0.04) 0.2667 0.1953 -0.0856 0 0 0.1393 0.0899 0.03 0.1362 0.0353 0.0761
(o
CD MACD(50, 220, 0.06) 0.2667 0.1953 -0.1014 0.0169 0 0.1401 0.0899 0.03 0.1362 0.0353 0.0761
MACD(35, 240, 0.04) 0.2667 0.1953 -0.0906 0 0 0.1445 0.0899 0.03 0.1362 0.0353 0.076
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
MACD(25, 280, 0.02) 0.2031 0.1808 0.2017 0 0 0.1004 0.1109 0.1027 0.1004 0.1596 0.1353
MACD(20, 240, 0.04) 0.2031 0.1808 0.2086 0 0 0.1035 0.1109 0.1027 0.1004 0.1596 0.1366
MACD(15, 260, 0.04) 0.2031 0.1808 0.1999 0 0 0.1005 0.1109 0.1027 0.1004 0.1596 0.135
MACD(30, 300, 0.02) 0.2031 0.1808 0.2057 0 0 0.0979 0.1109 0.1027 0.1004 0.1596 0.1357
MACD(20, 200, 0.06) 0.2031 0.1808 0.215 0 0 0.1003 0.1109 0.1027 0.1004 0.1596 0.1373
MACD(50, 260, 0.06) 0.2031 0.1808 0.2218 0.0697 0 0.09 0.1109 0.1027 0.1004 0.1596 0.1395
MACD(25, 300, 0.02) 0.2031 0.1808 0.204 0 0 0.0983 0.1109 0.1027 0.1004 0.1596 0.1355
o cD
-, MACD(45, 160, 0.02) 0.1722 0.1808 0.2018 0 0 0.1039 0.1109 0.1027 0.1004 0.1596 0.1312
MACD(20, 300, 0.02) 0.2031 0.1808 0.1999 0 0 0.0991 0.1109 0.1027 0.1004 0.1596 0.1349
i.--
MACD(15, 220, 0.06) 0.2031 0.1808 0.2097 0 0 0.1016 0.1109 0.1027 0.1004 0.1596 0.1366
L-" 0.1004 0.1596 0.1358
MACD(40, 280, 0.02) 0.2031 0.1808 0.2061 0 0 0.0979 0.1109 0.1027
,"b 0 0.0916 0.1109 0.1027 0.1004 0.1596 0.1396
MACD(50, 240, 0.06) 0.2031 0.1808 0.2218 0.0697
MACD(20, 260, 0.02) 0.1864 0.1808 0.1982 0 0 0.104 0.1109 0.1027 0.1004 0.1596 0.1326
MACD(45, 280, 0.04) 0.2031 0.1808 0.2152 0 0 0.0927 0.1109 0.1027 0.1004 0.1596 0.1368
.-t
MACD(50, 300, 0.06) 0.2031 0.1808 0.2218 0.0696 0 0.0832 0.1109 0.1027 0.1004 0.1596 0.139
MACD(25, 220, 0.02) 0.1843 0.1808 0.1982 0 0 0.1074 0.1109 0.1027 0.1004 0.1596 0.1326
MACD(25, 240, 0.04) 0.2031 0.1808 0.2096 0 0 0.1016 0.1109 0.1027 0.1004 0.1596 0.1366
MACD(45, 220, 0.04) 0.2031 0.1808 0.2141 0 0 0.0983 0.1109 0.1027 0.1004 0.1596 0.1371
MACD(50, 220, 0.06) 0.2031 0.1808 0.2218 0.0684 0 0.0912 0.1109 0.1027 0.1004 0.1596 0.1395
MACD(35, 240, 0.04) 0.2031 0.1808 0.2086 0 0 0.1003 0.1109 0.1027 0.1004 0.1596 0.1363
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Movin Average Con 'ergence Diverence: MAC (ShortWindowSize, LongWindowSize, 9)
(D Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
MACD(25, 280, 0.02) 1.3129 1.0802 -0.1381 NaN NaN 1.4922 0.8112 0.2923 1.3565 0.2212 0.6143
('- MACD(20, 240, 0.04) 1.3129 1.0802 -0.4154 NaN NaN 1.8498 0.8112 0.2923 1.3565 0.2212 0.593
(D MACD(15, 260, 0.04) 1.3129 1.0802 -0.3053 NaN NaN 1.5317 0.8112 0.2923 1.3565 0.2212 0.5895
MACD(30, 300, 0.02) 1.3129 1.0802 -0.2629 NaN NaN 1.3178 0.8112 0.2923 1.3565 0.2212 0.5781
MACD(20, 200, 0.06) 1.3129 1.0802 -0.3145 NaN NaN 1.44 0.8112 0.2923 1.3565 0.2212 0.5774
MACD(50, 260, 0.06) 1.3129 1.0802 -0.457 0.4783 NaN 1.5666 0.8112 0.2923 1.3565 0.2212 0.5718
MACD(25, 300, 0.02) 1.3129 1.0802 -0.3446 NaN NaN 1.4169 0.8112 0.2923 1.3565 0.2212 0.5716
MACD(45, 160, 0.02) 0.8294 1.0802 -0.1261 NaN NaN 1.9641 0.8112 0.2923 1.3565 0.2212 0.5712
09
(D MACD(20, 300, 0.02) 1.3129 1.0802 -0.3053 NaN NaN 1.2688 0.8112 0.2923 1.3565 0.2212 0.5699
cn
Ct--
CD1
(D MACD(15, 220, 0.06) 1.3129 1.0802 -0.4683 NaN NaN 1.6825 0.8112 0.2923 1.3565 0.2212 0.5691
MACD(40, 280, 0.02) 1.3129 1.0802 -0.3353 NaN NaN 1.3178 0.8112 0.2923 1.3565 0.2212 0.5654
MACD(50, 240, 0.06) 1.3129 1.0802 -0.457 0.4783 NaN 1.4266 0.8112 0.2923 1.3565 0.2212 0.5646
MACD(20, 260, 0.02) 0.8456 1.0802 -0.2523 NaN NaN 2.0091 0.8112 0.2923 1.3565 0.2212 0.5643
MACD(45, 280, 0.04) 1.3129 1.0802 -0.2817 NaN NaN 1.2597 0.8112 0.2923 1.3565 0.2212 0.5639
MACD(50, 300, 0.06) 1.3129 1.0802 -0.457 0.4363 NaN 1.594 0.8112 0.2923 1.3565 0.2212 0.5637
CD MACD(25, 220, 0.02) 1.0053 1.0802 -0.2484 NaN NaN 1.6439 0.8112 0.2923 1.3565 0.2212 0.5622
r•
MACD(25, 240, 0.04) 1.3129 1.0802 -0.5011 NaN NaN 1.6381 0.8112 0.2923 1.3565 0.2212 0.5601
MACD(45, 220, 0.04) 1.3129 1.0802 -0.3995 NaN NaN 1.4169 0.8112 0.2923 1.3565 0.2212 0.5585
MACD(50, 220, 0.06) 1.3129 1.0802 -0.457 0.2465 NaN 1.5358 0.8112 0.2923 1.3565 0.2212 0.5584
MACD(35, 240, 0.04) 1.3129 1.0802 -0.4346 NaN NaN 1.44 0.8112 0.2923 1.3565 0.2212 0.5577
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
MACD(25, 280, 0.02) 1 1 0.84 0 0 0.59 1 1 1 1 0.74
MACD(20, 240, 0.04) 1 1 0.91 0 0 0.61 1 1 1 1 0.75
'-1 MACD(15, 260, 0.04) 1 1 0.83 0 0 0.6 1 1 1 1 0.74
MACD(30, 300, 0.02) 1 1 0.88 0 0 0.57 1 1 1 1 0.74
tIZ MACD(20, 200, 0.06) 1 1 0.94 0 0 0.59 1 1 1 1 0.75
c-1
CD)
cm MACD(50, 260, 0.06) 1 1 1 0.06 0 0.51 1 1 1 1 0.76
17ý
0 MACD(25, 300, 0.02) 1 1 0.87 0 0 0.57 1 1 1 1 0.74
0 MACD(45, 160, 0.02) 0.77 1 0.85 0 0 0.62 1 1 1 1 0.72
0o--,0 MACD(20, 300, 0.02) 1 1 0.83 0 0 0.58 1 1 1 1 0.74
Z MACD(15, 220, 0.06) 1 1 0.92 0 0 0.6 1 1 1 1 0.75
MACD(40, 280, 0.02) 1 1 0.88 0 0 0.57 1 1 1 1 0.74
CA MACD(50, 240, 0.06) 1 1 1 0.06 0 0.53 1 1 1 1 0.76
MACD(20, 260, 0.02) 0.88 1 0.81 0 0 0.62 1 1 1 1 0.73
01 MACD(45, 280, 0.04) 1 1 0.94 0 0 0.54 1 1 1 1 0.75
MACD(50, 300, 0.06) 1 1 1 0.06 0 0.46 1 1 1 1 0.75
MACD(25, 220, 0.02) 0.85 1 0.81 0 0 0.65 1 1 1 1 0.73
MACD(25, 240, 0.04) 1 1 0.92 0 0 0.6 1 1 1 1 0.75
MACD(45, 220, 0.04) 1 1 0.94 0 0 0.57 1 1 1 1 0.75
MACD(50, 220, 0.06) 1 1 1 0.05 0 0.52 1 1 1 1 0.76
MACD(35, 240, 0.04) 1 1 0.91 0 0 0.59 1 1 1 1 0.75
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Table B.7: Performance Summary of Top 20 Moving Average Convergence and
Divergence Strategies (Numbers of Trading)
206
 Trend-based Regression Algorithm: Trend-based Regression(W, K, 8)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression(8, 100, 0.5) 0.2691 0.1191 0.1626 -0.0117 -0.1054 0.2612 -0.0377 -0.0172 0.1398 0.047 0.0759
Trend-based Regression(6, 60, 0.2) 0.2979 0.0598 0.0031 -0.1307 0.0426 0.3153 0.0864 0.0681 0.113 -0.0242 0.0756
Trend-based Regression(6, 60, 0.3) 0.2735 0.066 0.1169 -0.0875 0.0225 0.2695 0.0361 0.0251 0.104 -0.0202 0.0751
Trend-based Regression(6, 90, 0.3) 0.271 0.1177 0.0672 -0.1431 -0.0449 0.2021 0.0728 -0.0062 0.1761 0.0162 0.0663
Trend-based Regression(6, 100, 0.2) 0.2452 0.1125 0.0066 -0.0771 -0.088 0.1889 0.0136 0.0294 0.1513 0.1212 0.0651
Trend-based Regression(8, 60, 0.4) 0.1441 -0.0315 0.1907 -0.2102 0.1732 0.1785 0.066 0.0401 0.1094 0.0432 0.0634
Trend-based Regression(6, 100, 0.4) 0.2559 0.186 -0.0256 -0.0943 -0.0826 0.3758 0.0865 -0.05 0.098 -0.0319 0.0617
Trend-based Regression(8, 100, 0.8) 0.2374 0.085 0.0548 0.1503 -0.2318 0 0.1064 0.03 0. 1428 0.1131 0.0614
Trend-based Regression(10, 40, 0) 0.1979 0.2538 -0.0917 0.1321 -0.2396 0.1756 0.0068 0.0735 0.0527 0.1523 0.0611
Trend-based Regression(7, 30, 0.5) 0.3825 0.0077 0.1121 -0.0579 -0.2361 0.2521 0.0782 0.0039 0.1691 0.0229 0.061
N Trend-based Regression(9, 60, 0.2) 0.1285 0.0331 -0.0379 -0.0942 0.1514 0.1209 0.1193 0.0291 0.1088 0.0726 0.0603
Trend-based Regression(4, 20, 0.9) 0.5068 0.163 -0.1184 -0.074 -0.1937 0.2619 0.0472 0.0185 0.1658 -0.0142 0.0596
Trend-based Regression(8, 30, 1) 0.0992 0.0508 0.0316 0.0169 -0.1031 0.3017 0.0686 0.0106 0.1478 0.0052 0.0583
Trend-based Regression(5, 40, 0.1) 0.3155 0.2173 -0.0896 -0.0527 -0.2141 0.258 0.0688 0.044 0.0622 0.0793 0.0574
Trend-based Regression(2, 70, 0) 0.1879 -0.1284 0.2145 -0.1228 0.0095 0.1845 0.1069 0.1125 0.059 0.013 0.0571
Trend-based Regression(7, 30, 0.1) 0.2209 0.1545 -0.0043 -0.0461 -0.2073 0.1803 -0.001 0.0401 0.1927 0.1201 0.0569
Trend-based Regression(6, 30, 0.4) 0.2973 0.1587 -0.0069 -0.0228 -0.2357 0.3514 0.024 -0.0016 0.1152 0.0115 0.0568
Trend-based Regression(3, 60, 0.1) 0.1563 0.0231 0.1611 -0.0982 -0.0785 0.1826 0.1065 0.1022 0.0602 -0.0065 0.0566
Trend-based Regression(9, 60, 0.1) 0.1565 -0.0345 -0.0788 0.0115 -0.0337 0.1862 0.1218 0.0235 0.1032 0.1447 0.0563
Trend-based Regression(10, 20, 0.2) 0.2117 0.037 -0.0149 0.2013 -0.2442 0.2035 0.0059 0.0735 0.0843 0.0875 0.0559
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression(8, 100, 0.5) 0.1397 0.1478 0.1153 0.1114 0.1543 0.171 0.0772 0.0721 0.0647 0.1245 0.1229
Trend-based Regression(6, 60, 0.2) 0.1229 0.1305 0.1523 0.1358 0.1759 0.1498 0.0695 0.0622 0.0733 0.1139 0.1242
Trend-based Regression(6, 60, 0.3) 0.11 0.1303 0.1296 0.1065 0.1813 0.1457 0.0712 0.0655 0.0741 0.1122 0.1178
Trend-based Regression(6, 90, 0.3) 0.1267 0.1288 0.1285 0.1432 0.1375 0.1601 0.0731 0.0824 0.0739 0.1115 0.1201
N Trend-based Regression(6, 100, 0.2) 0.1098 0.1417 0.1632 0.1507 0.16 0.149 0.0684 0.0751 0.0742 0.1223 0.1265
CD
CD Trend-based Regression(8, 60, 0.4) 0.0952 0.1163 0.1445 0.1606 0.1414 0.1472 0.0717 0.0679 0.0717 0. 1077 0.1172
Trend-based Regression(6, 100, 0.4) 0.1305 0.1405 0.1333 0.1212 0.1335 0.13 0.0787 0.0606 0.0618 0.1282 0.1158
Trend-based Regression(8, 100, 0.8) 0.1125 0.0496 0.1309 0.1275 0.1672 0 0.0958 0.1027 0.0885 0.1034 0.1071
Trend-based Regression(10, 40, 0) 0.1458 0.1313 0.1636 0.1233 0.1733 0.1241 0.0804 0.0772 0.0654 0.109 0.1243
Trend-based Regression(7, 30, 0.5) 0.1282 0.125 0.1596 0.1181 0.1683 0.1235 0.0723 0.0633 0.0687 0.1051 0.1183
Trend-based Regression(9, 60, 0.2) 0.1421 0.132 0.1671 0.1663 0.1806 0.1384 0.0753 0.0747 0.0713 0.1134 0.132
c--
Trend-based Regression(4, 20, 0.9) 0.1567 0.1388 0.1181 0.1231 0.1711 0.1689 0.0655 0.0468 0.0684 0.0845 0.1221
C-- Trend-based Regression(8, 30, 1) 0.0939 0.1056 0.1461 0.1119 0.1803 0.1237 0.0662 0.0815 0.0725 0.1019 0.1133
Trend-based Regression(5, 40, 0.1) 0.125 0.1302 0.1681 0.1323 0.1803 0.136 0.0688 0.0691 0.0651 0.1098 0.1245
Trend-based Regression(2, 70, 0) 0.115 0.1259 0.1624 0.1216 0.1663 0.1378 0.0647 0.0674 0.0706 0.1189 0.1203
Trend-based Regression(7, 30, 0.1) 0.1249 0.1298 0.1689 0.1223 0.1677 0.1239 0.0728 0.0674 0.0746 0.1094 0.1212
Trend-based Regression(6, 30, 0.4) 0.123 0.1291 0.1563 0.1273 0.1782 0.136 0.0704 0.0623 0.0723 0.1038 0.1215
Trend-based Regression(3, 60, 0.1) 0.1074 0.1407 0.1456 0.1176 0.1723 0.1451 0.0701 0.0664 0.0696 0.1129 0.12
Trend-based Regression(9, 60, 0.1) 0.1382 0.1413 0.1664 0.1474 0.1876 0.1346 0.0773 0.0788 0.0705 0.1064 0.1305
Trend-based Regression(10, 20, 0.2) 0.1243 0.131 0.172 0.1433 0.1682 0.1269 0.0818 0.0712 0.0706 0.1139 0.1252
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Trend-based Regression Algorithm: Trend-based Regression(W, K, 0)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression(8, 100, 0.5) 1.9256 0.8057 1.4105 -0.1049 -0.6832 1.5272 -0.4877 -0.2378 2.1612 0.3773 0.606
Trend-based Regression(6, 60, 0.2) 2.4245 0.4586 0.0201 -0.9626 0.2424 2.1055 1.2437 1.0938 1.5409 -0.212 0.6038
Trend-based Regression(6, 60, 0.3) 2.4865 0.5063 0.9018 -0.8217 0.1241 1.8498 0.5071 0.3825 1.4022 -0.18 0.5997
Trend-based Regression(6, 90, 0.3) 2.1384 0.9133 0.5229 -0.9996 -0.3267 1.2623 0.996 -0.0756 2.3829 0.1456 0.5295
C/ Trend-based Regression(6, 100, 0.2) 2.2322 0.7937 0.0407 -0.5115 -0.5504 1.2678 0.198 0.3912 2.0377 0.9912 0.5199
Trend-based Regression(8, 60, 0.4) 1.5128 -0.2712 1.3194 -1.3088 1.225 1.2125 0.92 0.5907 1.5256 0.4006 0.506
Trend-based Regression(6, 100, 0.4) 1.9609 1.3243 -0.192 -0.7785 -0.619 2.8906 1.098 -0.8252 1.5849 -0.2485 0.4929
Trend-based Regression(8, 100, 0.8) 2.1101 1.7138 0.4183 1.1791 -1.3864 NaN 1.11 0.2923 1.6141 1.0933 0.49
Trend-based Regression(10, 40, 0) 1.3575 1.9333 -0.5605 1.0709 -1.3824 1.4144 0.0841 0.9526 0.8069 1.3977 0.4881
Trend-based Regression(7, 30, 0.5) 2.9832 0.0619 0.7024 -0.4904 -1.403 2.0409 1.0814 0.0618 2.4614 0.2181 0.4867
Trend-based Regression(9, 60, 0.2) 0.9044 0.2505 -0.2268 -0.5665 0.8383 0.8738 1.5842 0.3896 1.5264 0.6405 0.4816
Trend-based Regression(4, 20, 0.9) 3.2342 1.1743 -1.0024 -0.6011 -1.1319 1.5512 0.7214 0.3948 2.4225 -0.1678 0.476
O' Trend-based Regression(8, 30, 1) 1.0565 0.4814 0.2164 0.1514 -0.5716 2.44 1.0362 0.1305 2.0379 0.0515 0.4659
©
Trend-based Regression(5, 40, 0.1) 2.5233 1.6686 -0.5329 -0.3981 -1.1875 1.8977 1.0006 0.6363 0.9555 0.7223 0.458
Trend-based Regression(2, 70, 0) 1.6336 -1.0194 1.3203 -1.0098 0.0574 1.3393 1.6524 1.6696 0.8356 0.1096 0.456
O
O Trend-based Regression(7, 30, 0.1) 1.7676 1.191 -0.0253 -0.3771 -1.2363 1.4551 -0.0131 0.5943 2.5847 1.098 0.4542
Trend-based Regression(6, 30, 0.4) 2.416 1.2291 -0.0444 -0.1792 -1.3223 2.5838 0.3407 -0.0262 1.5931 0.1109 0.4535
Trend-based Regression(3, 60, 0.1) 1.4552 0.1645 1.1061 -0.835 -0.4554 1.258 1.5195 1.5386 0.8641 -0.0573 0.4518
Trend-based Regression(9, 60, 0.1) 1.133 -0.2438 -0.4737 0.0781 -0.1797 1.3833 1.5754 0.2979 1.4627 1.3593 0.4494
Trend-based Regression(10, 20, 0.2) 1.7026 0.2829 -0.0864 1.404 -1.4518 1.6037 0.0722 1.0317 1.1948 0.7685 0.4461
m
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
0'I 0.13 0.38 0.99 0.46 0.36 0.41 0.53 0.45
C': Trend-based Regression(8, 100, 0.5) 0.36 0.65 0.24
Trend-based Regression(6, 60, 0.2) 0.45 0.48 0.39 0.51 0.48 0.71 0.42 0.44 0.6 0.49 0.5
Trend-based Regression(6, 60, 0.3) 0.48 0.51 0.37 0.35 0.48 0.66 0.44 0.47 0.6 0.5 0.49
Trend-based Regression(6, 90, 0.3) 0.48 0.48 0.41 0.35 0.39 0.84 0.49 0.58 0.42 0.47 0.49
Trend-based Regression(6, 100, 0.2) 0.39 0.57 0.5 0.58 0.48 0.72 0.4 0.53 0.5 0.47 0.51
0c+ Trend-based Regression(8, 60, 0.4) 0.29 0.4 0.37 0.63 0.35 0.73 0.41 0.4 0.53 0.46 0.46
Trend-based Regression(6, 100, 0.4) 0.48 0.56 0.28 0.26 0.27 0.71 0.48 0.31 0.42 0.61 0.44
'1 0.51
Trend-based Regression(8, 100, 0.8) 0.48 0.17 0.19 0.35 0.55 0 0.79 1 0.9 0.63
0 Trend-based Regression(10, 40, 0) 0.45 0.51 0.46 0.5 0.52 0.49 0.52 0.52 0.5 0.49 0.5
Trend-based Regression(7, 30, 0.5) 0.37 0.47 0.37 0.46 0.48 0.57 0.5 0.46 0.49 0.47 0.46
Trend-based Regression(9, 60, 0.2) 0.43 0.5 0.44 0.67 0.52 0.62 0.46 0.48 0.54 0.51 0.52
Trend-based Regression(4, 20, 0.9) 0.73 0.6 0.2 0.53 0.5 0.99 0.36 0.33 0.58 0.27 0.51
Trend-based Regression(8, 30, 1) 0.25 0.36 0.32 0.38 0.48 0.65 0.33 0.66 0.5 0.36 0.43
Trend-based Regression(5, 40, 0.1) 0.54 0.48 0.49 0.55 0.6 0.58 0.45 0.5 0.55 0.47 0.52
Trend-based Regression(2, 70, 0) 0.43 0.54 0.47 0.46 0.53 0.65 0.35 0.47 0.6 0.45 0.5
Trend-based Regression(7, 30, 0.1) 0.49 0.49 0.45 0.51 0.53 0.54 0.48 0.5 0.53 0.51 0.5
Trend-based Regression(6, 30, 0.4) 0.48 0.54 0.37 0.5 0.52 0.63 0.53 0.45 0.58 0.44 0.5
Trend-based Regression(3, 60, 0.1) 0.44 0.57 0.4 0.44 0.56 0.67 0.45 0.48 0.61 0.45 0.51
Trend-based Regression(9, 60, 0.1) 0.46 0.54 0.47 0.58 0.56 0.59 0.45 0.49 0.53 0.49 0.52
Trend-based Regression(10, 20, 0.2) 0.48 0.51 0.49 0.52 0.51 0.56 0.56 0.56 0.53 0.55 0.53
 Trend-based Regression Algorithm: Trend-based Regression(W, K, 6)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression(8, 100, 0.5) 9 9 29 9 9 1 4 10 15 25 12
Trend-based Regression(6, 60, 0.2) 47 55 68 47 50 36 42 54 64 75 53.8
Trend-based Regression(6, 60, 0.3) 37 44 37 25 36 23 25 24 44 59 35.4
Trend-based Regression(6, 90, 0.3) 22 25 38 15 26 15 13 18 42 51 26.5
Trend-based Regression(6, 100, 0.2) 33 40 65 33 44 31 35 44 72 73 47
Trend-based Regression(8, 60, 0.4) 29 28 40 22 32 22 16 22 32 53 29.6
CD Trend-based Regression(6, 100, 0.4) 13 13 26 9 12 8 6 5 15 33 14
Trend-based Regression(8, 100, 0.8) 5 1 9 5 3 0 1 0 4 7 3.5
tQ Trend-based Regression(10, 40, 0) 123 118 114 97 124 125 123 127 126 106 118.3
D 0 Trend-based Regression(7, 30, 0.5) 29 39 35 27 38 13 35 22 36 39 31.3
Trend-based Regression(9, 60, 0.2) 63 58 72 61 68 59 67 70 68 83 66.9
Trend-based Regression(4, 20, 0.9) 10 4 7 9 16 2 7 7 13 17 9.2
Trend-based Regression(8, 30, 1) 7 10 13 9 18 5 12 7 18 25 12.4
Trend-based Regression ( 5 , 40, 0.1)
R. 66 90 85 61 82 85 83 92 101 96 84.1

as
-
eC Trend-based Regression(2, 70, 0)
Trend-based Regression(7, 30, 0.1)
Trend-based Regression(6, 30, 0.4)
Trend-based Regression(3, 60, 0.1)
91
96
29
55
102
95
39
76
127
90
41
91
73
27
120
88
50
126
96
19
68
93
37
110
95
28
123
103
36
118
80
49
107.6
90.9
35.5
61 39 60 51 47 70 77 75 61.1
Trend-based Regression(9, 60, 0.1) 79 83 92 81 90 89 89 102 92 101 89.8
Trend-based Regression(10, 20, 0.2) 76 103 85 82 93 85 88 103 86 98 89.9
 Trend-based Regression Algorithm with Trading Volume (W:V = 1:1) : Trend-based Regression w/Trad. Vol.(W, V, K, 8)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression w/Trad. Vol.(8, 8,20, 0.5) 0.1687 0.2522 -0.1374 -0.0823 -0.0338 0.1804 0.1835 -0.0052 0.175 0.0301 0.0653
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.9) 0.0976 0.2407 0.0651 0.0534 -0.0232 0.1587 -0.0562 0.0169 0.0267 0.0998 0.0648
Trend-based Regression w/Trad. Vol.(8, 8,20, 0.2) 0.1618 0.2536 -0.1351 -0.0665 -0.0412 0.1905 0.1835 -0.0052 0.172 0.0091 0.0645
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.3) 0.1626 0.2552 -0.1396 -0.0665 -0.0338 0.1785 0.1835 -0.0052 0.172 0.0091 0.0639
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.4) 0.1626 0.2552 -0.1396 -0.0671 -0.0338 0.1785 0.1835 -0.0052 0.172 0.0091 0.0639
Trend-based Regression w/Trad. Vol.(6, 6, 10, 1) 0.0967 0.2407 0.0596 0.0394 -0.0232 0.1587 -0.0562 0.0204 0.0347 0.0935 0.0633
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.6) 0.1189 0.2555 -0.1344 -0.0993 -0.0143 0.1804 0.1835 -0.0052 0.175 0.03 0.0615
Trend- based Regression w/Trad. Vol.(8, 8, 20, 0.7) 0.1049 0.2678 -0.1314 -0.1016 -0.0043 0.1459 0.2005 -0.0052 0.175 0.0265 0.0603
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.8) 0.0746 0.2407 0.0651 0.0453 -0.0274 0.1587 -0.0562 0.006 0.0267 0.0998 0.0601
Trend-based Regression w/Trad. Vol.(8, 8, 20, 1) 0.1111 0.215 -0.1051 -0.1115 0.001 0.1526 0.2018 0.0058 0.1773 0.0125 0.0596
Trend-based Regression w/Trad. Vol.(6, 6, 20, 1) 0.0818 0.2753 0.002 -0.0435 -0.0258 0.0696 0.123 -0.0347 0.2002 -0.0239 0.0575
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.8) 0.1068 0.0939 -0.1626 -0.0647 0.1396 0.2018 0.1764 0.0066 0.0284 0.0941 0.0564
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.1) 0.1618 0.2473 -0.1894 -0.0809 -0.0412 0.1905 0.1835 -0.0052 0.172 0.0091 0.0555
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.7) 0.1129 0.08 -0.1696 -0.0664 0.1396 0.2018 0.1764 0.0066 0.0284 0.1013 0.0552
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0) 0.1063 0.1957 0.0137 0.0832 0.0002 0.1156 -0.0444 0.009 0.0011 0.0915 0.055
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.9) 0.1111 0.202 -0.1391 -0.103 0.001 0.143 0.2005 -0.0052 0.1773 0.0265 0.0547
H ft Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.8) 0.1049 0.2109 -0.1391 -0.1016 -0.0043 0.1452 0.2005 -0.0052 0.175 0.0265 0.0545
Trend-based Regression w/Trad. Vol.(6, 6, 20, 0.7) 0.0624 0.2856 0.0205 -0.0726 -0.0764 0.0937 0.1185 -0.0251 0.215 -0.0239 0.0538
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.6) 0.084 0.2196 0.0282 0.0577 -0.0274 0.1264 -0.0562 0.0121 0.0163 0.1018 0.0535
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.7) 0.0869 0.2196 0.0312 0.0259 -0.0274 0.1344 -0.0562 0.0156 0.0267 0.1018 0.0531
k< N
SClc+ Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.5) 0.1284 0.1352 0.1524 0.1504 0.1862 0.111 0.0779 0.0729 0.0779 0.1136 0.1257
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.9) 0.1608 0.1252 0.146 0.1553 0.1983 0.1238 0.0803 0.073 0.0765 0.1119 0.1311
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.2) 0.1285 0.1352 0.1504 0.1494 0.187 0.1105 0.0779 0.0729 0.0779 0.1155 0.1256
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.3) 0.1285 0.1352 0.1524 0.1494 0.1862 0.111 0.0779 0.0729 0.0779 0.1155 0.1257
O Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.4) 0.1285 0.1352 0.1524 0.1494 0.1862 0.111 0.0779 0.0729 0.0779 0.1155 0.1257
Trend-based Regression w/Trad. Vol.(6, 6, 10, 1) 0.1608 0.1252 0.1459 0.1566 0.1983 0.1238 0.0803 0.0732 0.0761 0.1117 0.1312
Trend-based Regression w/Trad. Vol. (8, 8, 20, 0.6) 0.1212 0.1352 0.1523 0.1515 0.184 0.111 0.0779 0.0729 0.0779 0.1136 0.1248
Cl Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.7) 0.1231 0.1356 0.1522 0.1519 0.1844 0.1148 0.0785 0.0729 0.0779 0.1136 0.1255
01 0 1252 0.146 0.1555 0.1983 0.1238 0.0803 0.0737 0.0765 0.1119 0.131
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.8) 0.1601
Trend-based Regression w/Trad. Vol.(8, 8, 20, 1) 0.1232 0.1317 0.1496 0.1514 0.1843 0.1147 0.0785 0.0737 0.0779 0.1144 0.1248
Trend-based Regression w/Trad. Vol.(6, 6, 20, 1) 0.1315 0.1379 0.1682 0.1379 0.1928 0.1126 0.081 0.0644 0.0741 0.1271 0.1288
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.8) 0.1317 0.1183 0.1619 0.1466 0.1732 0.1164 0.0814 0.0689 0.0629 0.1073 0.1222
Trend- based Regression w/Trad. Vol.(8, 8, 20, 0.1) 0.1285 0.1354 0.1508 0.1498 0.187 0.1105 0.0779 0.0729 0.0779 0.1155 0.1257
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.7) 0.1322 0.1176 0.1621 0.1466 0.1732 0.1164 0.0814 0.0689 0.0629 0.1076 0.1223
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0) 0.1599 0.1247 0.1561 0.1569 0.1951 0.1214 0.0812 0.0748 0.076 0.1129 0.1318
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.9) 0.1232 0.1312 0.1523 0.1519 0.1843 0.115 0.0785 0.0729 0.0779 0.1136 0.125
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.8) 0.1231 0.1316 0.1523 0.1519 0.1844 0.1148 0.0785 0.0729 0.0779 0.1136 0.125
Trend-based Regression w/Trad. Vol.(6, 6, 20, 0.7) 0.1313 0.1376 0.1694 0.139 0.1918 0.1167 0.0823 0.0654 0.0734 0.1271 0.1293
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.6) 0.1606 0.1264 0.1479 0.162 0.1983 0.1217 0.0803 0.0742 0.076 0.1119 0.132
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.7) 0.1595 0.1264 0.1479 0.1566 0.1983 0.122 0.0803 0.0742 0.0765 0.1119 0.1313
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Trend-based Regression Algorithm with Trading Volume (W:V = 1:1) : Trend-based Regression w/Trad. Vol.(W, V, K, 6)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Repression w/Trad. Vol.(8, 8, 20, 0.5) 1.3136 1.8652 -0.9019 -0.5476 -0.1816 1.6256 2.3565 0.0711 2.2452 0.2649 0.4975
C,
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.9) 0.6072 1.9221 0.4458 0.344 -0.1171 1.2815 -0.7005 0.231 0.3485 0.8919 0.4937
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.2) 1.2586 1.8756 -0.8982 -0.4452 -0.2202 1.7234 2.3565 0.0711 2.2081 0.079 0.4916
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.3) 1.2656 1.8872 -0.9161 -0.4452 -0.1816 1.6084 2.3565 0.0711 2.2081 0.079 0.487
Trend-based Regression w/Trad. VoI.(8, 8, 20, 0.4) 1.2656 1.8872 -0.9161 -0.4487 -0.1816 1.6084 2.3565 -0.0711 2.2081 0.079 0.4866
Trend-based Regression w/Trad. Vol.(6, 6, 10, 1) 0.6015 1.9221 0.4083 0.2514 -0.1171 1.2815 -0.7005 0.2783 0.4557 0.8366 0.4823
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.6) 0.981 1.889 -0.8822 -0.6555 -0.0778 1.6256 2.3565 -0.0711 2.2452 0.2644 0.4683
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.7) 0.8526 1.9747 -0.8633 -0.6691 -0.0234 1.2713 2.5536 -0.0711 2.2452 0.233 0.4596
OIIo Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.8) 0.4661 1.9221 0.4458 0.2916 -0.1379 1.2815 -0.7005 0.081 0.3485 0.8919 0.4581
Trend-based Regression w/Trad. Vol.(8, 8, 20, 1) 0.9014 1.633 -0.7021 -0.7366 0.0055 1.331 2.5697 0.0787 2.2749 0.1093 0.4541
Trend-based Regression w/Trad. Vol.(6, 6, 20, 1) 0.6219 1.9962 0.0119 -0.3158 -0.1339 0.6179 1.519 -0.5384 2.7008 -0.1879 0.4382
r Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.8) 0.8108 0.7941 -1.0044 -0.4414 0.8064 1.7335 2.1658 0 0964 0.4512 0.8775 0.4294
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.1) 1.2586 1.8269 -1.2561 -0.5396 -0.2202 1.7234 2.3565 -0.0711 2.2081 0.079 0.4227
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.7) 0.8541 0.6801 -1.0467 -0.4526 0.8064 1.7335 2.1658 0.0964 0.4512 0.9414 0.4205
Trend-based Regression w/fTrad. Vol.(6, 6, 10, 0) 0.665 1.5689 0.0879 0.5304 0.0008 0.9525 -0.5469 0.1208 0.0141 0.8105 0.4187
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.9) 0.9014 1.5394 -0.9128 -0.6785 0.0055 1.2436 2.5536 -0.0711 2.2749 0.233 0.4165
-'S Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.8) 0.8526 1.6023 -0.9128 -0.6691 -0.0234 1.2648 2.5536 -0.0711 2.2452 0.233 0.4149
Trend-based Regression w/Trad. Vol.(6, 6, 20, 0.7) 0.475 2.076 0.1211 -0.5225 -0.3982 0.8029 1.44 -0.3838 2.9313 -0.1879 0.4097
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.6) 0.5227 1.7374 0.1905 0.3559 -0.1379 1.0392 -0.7005 0.1628 0.2145 0.9096 0.4078
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.7) 0.5446 1.7374 0.2108 0.1652 -0.1379 1.1017 -0.7005 0.2095 0.3485 0.9096 0.4043
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Co Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
0 O
0 Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.5) 0.51 0.5 0.54 0.5 0.49 0.52 0 49 0.51 0.52 0.5 0.51
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.9) 0.52 0.53 0.46 0.48 0.52 0.52 0.51 0.52 0.53 0.56 0.51
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.2) 0.52 0.5 0.53 0.49 0.5 0.52 0.49 0.51 0.51 0.51 0.51
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.3) 0.52 0.5 0.54 0.49 0.49 0.52 0.49 0.51 0.51 0.51 0.51
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.4) 0.52 0.5 0.54 0.5 0.49 0.52 0.49 0.51 0.51 0.51 0.51
Trend-based Regression w/Trad. Vol.(6, 6, 10, 1) 0.52 0.53 0.46 0.49 0.52 0.52 0.51 0.52 0.52 0.56 0.51
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.6) 0.51 0.5 0.53 0.5 0.48 0.52 0.49 0.51 0.52 0.51 0.51
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.7) 0.52 0.5 0.53 0.51 0.48 0.52 0.5 0.51 0.52 0.5 0.51
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.8) 0.52 0.53 0.46 0.48 0.52 0.52 0.51 0.52 0.53 0.56 0.52
O
Trend-based Regression w/Trad. Vol.(8, 8, 20, 1) 0.52 0.48 0.53 0.5 0.48 0.51 0.5 0.52 0.51 0.51 0.51
Trend-based Regression w/Trad. Vol.(6, 6, 20, 1) 0.5 0.5 0.5 0.46 0.49 0.49 0.5 0.43 0.48 0.51 0.49
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.8) 0.5 0.45 0.5 0.51 0.44 0.5 0.54 0.48 0.49 0.48 0.49
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.1) 0.52 0.5 0.54 0.5 0.5 0.52 0.49 0.51 0.51 0.51 0.51
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.7) 0.5 0.44 0.51 0.51 0.44 0.5 0.54 0.48 0.49 0.48 0.49
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0) 0.51 0.51 0.48 0.48 0.52 0.51 0.51 0.52 0.53 0.55 0.51
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.9) 0.52 0.48 0.54 0.5 0.48 0.52 0.5 0.51 0.51 0.5 0.51
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.8) 0.52 0.49 0.54 0.51 0.48 0.52 0.5 0.51 0.52 0.5 0.51
cD i- Trend-based Regression w/Trad. Vol.(6, 6, 20, 0.7) 0.5 0.5 0.5 0.46 0.48 0.51 0.51 0.44 0.48 0.51 0.49
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.6) 0.52 0.53 0.47 0.48 0.52 0.52 0.51 0.51 0.53 0.56 0.52
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.7) 0.51 0.53 0.47 0.49 0.52 0.52 0.51 0.52 0.53 0.56 0.52

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 Trend-based Regression Algorithm with Trading Volume (W:V = 1:1) : Trend-based Regression w/Trad. Vol.(W, V, K, 0)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.5) 143 136 132 124 133 128 133 130 135 131 132.5
O
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.9) 133 128 117 129 137 127 134 118 134 131 128.8
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.2) 145 140 134 128 139 130 133 130 137 131 134.7
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.3) 143 138 134 128 133 130 133 130 137 131 133.7
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.4) 143 138 134 126 133 130 133 130 137 131 133.5
Trend-based Regression w/Trad. Vol.(6, 6, 10, 1) 133 128 117 129 137 127 134 116 134 129 128.4
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.6) 139 134 130 122 131 128 133 130 135 129 131.1
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.7) 137 134 130 120 127 126 133 130 135 129 130.1
0 Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.8) 135 128 117 131 137 127 134 118 134 131 129.2
Trend-based Regression w/Trad. Vol.(8, 8, 20, 1) 135 128 130 118 127 122 133 130 135 127 128.5
Trend-based Regression w/Trad. Vol.(6, 6, 20, 1) 124 138 133 115 138 121 141 128 139 139 131.6
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.8) 141 137 131 122 126 111 124 131 131 126 128
Trend-based Regression w/Trad. Vol.(8, 8,20, 0.1) 145 142 142 130 139 130 133 130 137 131 135.9
Trend-based Regression w/Trad. Vol.(9, 9, 20, 0.7) 143 137 133 122 126 111 124 131 131 128 128.6
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0) 137 136 127 135 143 137 136 122 142 137 135.2
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.9) 135 130 130 120 127 122 133 130 135 129 129.1
Trend-based Regression w/Trad. Vol.(8, 8, 20, 0.8) 137 132 130 120 127 124 133 130 135 129 129.7
Trend-based Regression w/Trad. Vol.(6, 6, 20, 0.7) 128 140 135 119 144 125 145 128 139 139 134.2
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.6) 137 130 119 133 137 129 134 120 136 133 130.8
Trend-based Regression w/Trad. Vol.(6, 6, 10, 0.7) 137 130 119 133 137 129 134 118 134 133 130.4

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 Trend-based Regression Algorithm with Trading Volume (W:V = 2.1) Trend-based Regression w/Trad. Vol.( W, V, K, 0)
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Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.4) 0.3412 0.1317 0.0897 0.0192 0.1168 0.1437 -0.0177 -0.0351 0.1154 0.3342 0.1175
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.3) 0.3564 0.2069 0.0476 -0.0471 0.1373 0.1589 -0.0145 -0.0116 0.1169 0.2925 0.1172
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.2) 0.3377 0.1828 0.0419 -0.0642 0.1704 0.195 -0.0196 -0.0037 0.1091 0.2709 0.115
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0) 0.2958 0.1093 0.0216 0.1024 0.0391 0.3017 0.0127 0.0009 0.0729 0.2463 0.1149
Trend-based Regression w/Trad. Vol.(4, 2, 100, 0) 0.3941 0.1295 0.2238 -0.133 0.1434 0.1638 0.0117 -0.0335 0.1023 0.2143 0.1127
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.4) 0.2323 0.2287 0.3093 -0.082 -0.0878 0.2673 0.038 0.0655 0.0923 0.1292 0.1112
Trend-based Regression w/Trad. Vol.(4, 2, 100, 0.1) 0.4204 0.1183 0.1154 -0.0437 0.1368 0.1192 0.0256 -0.0521 0.0878 0.2531 0.1107
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.1) 0.3703 0.1754 0.1015 -0.1314 0.1891 0.1654 -0.0041 -0.0416 0.0889 0.2633 0.1086
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0) 0.3855 0.1583 0.013 -0.0949 0.2302 0.1969 -0.0081 -0.0133 0.0606 0.2185 0.1061
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0.1) 0.275 0.1035 0.0072 0.0143 0.1267 0.3168 -0.012 -0.0054 0.0734 0.2042 0.1048
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.2) 0.2593 0.0963 0.0821 0.0543 0.1015 0.1686 -0.019 0.0074 0.1979 0.0857 0.1005
0- D N
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.1) 0.3 0.085
0.0795
-0.0093
0.088
0.0092
0.0101
0.0054 0.3133
0.207
0.0129
-0.0284
0.0093
0.0105
0.0717
0.1878
0.2709
0.0852
0.1
0.0996
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.3) 0.2362 0.1539
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.3) 0.2359 0.2681 0.2515 -0.0896 -0.1192 0.2758 -0.0108 0.065 0.0927 0.11 0.0987
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.3) 0.1601 0.2717 0.1647 -0.0344 -0.0243 0.3543 0.0284 -0.0004 0.0938 0.036 0.0983
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.7) 0.2417 0.2909 0.1329 -0.0877 -0.0895 0.4146 0.0364 -0.0033 0.076 0.0763 0.0982
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0) 0.2378 0.0529 0.0237 0.0538 0.0513 0.2748 0.0009 0.0247 0.1593 0.1246 0.0968
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0) 0.2741 0.094 -0.023 -0.013 0.1081 0.3462 -0.013 -0.0064 0.0775 0.1868 0.0966
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.2) 0.2777 0.0586 0.0147 -0.0098 0.0656 0.2747 0.0007 -0.0183 0.0833 0.2667 0.0954
Trend-based Regression w/Trad. Vol.(6, 3, 70, 0.5) 0.1362 0.2881 0.2525 -0.0743 -0.0639 0.4041 -0.0082 0.0077 0.0954 0.0185 0.0954
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.4) 0.1215 0.1282 0.1438 0.1118 0.1908 0.1159 0.0789 0.0711 0.0743 0.103 0.119
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.3) 0.1251 0.1267 0.1445 0.1176 0.1949 0.1243 0.0803 0.0708 0.0744 0.106 0.1217
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.2) 0.1255 0.129 0.1438 0.1165 0.1984 0.1195 0.0795 0.0718 0.0746 0.1083 0.1221
O O Trend-based Regression w/Trad. Vol.(4, 2, 70, 0) 0.1258 0.1249 0.1453 0.1339 0.2043 0.1146 0.0803 0.0693 0.0754 0.107 0.124
INe Trend-based Regression w/Trad. Vol.(4, 2, 100, 0) 0.1296 0.1243 0.1539 0.1259 0.2042 0.124 0.0784 0.0758 0.0756 0.1075 0.1257
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.4) 0.1317 0.1172 0.1648 0.1318 0.1928 0.1251 0.0807 0.0685 0.0743 0.1006 0.1246
Trend-based Regression w/Trad. Vol.(4, 2, 100, 0.1) 0.1289 0.1195 0.1587 0.1165 0.2029 0.1368 0.0777 0.0761 0.0753 0.1031 0.1256
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.1) 0.1225 0.1293 0.1492 0.1176 0.2046 0.1201 0.0812 0.0716 0.0753 0.1104 0.124
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0) 0.1222 0.1277 0.1622 0.1187 0.2051 0.1111 0.0813 0.0718 0.0733 0.11 0.1246
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0.1) 0.1281 0.1274 0.1552 0.1478 0.1985 0.1064 0.0831 0.0717 0.0759 0.0996 0.1253
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.2) 0.1131 0.1204 0.148 0.1479 0.1999 0.1161 0.0775 0.0692 0.0767 0.1048 0.1234
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.1) 0.1269 0.1228 0.1464 0.1337 0.2031 0.1107 0.0799 0.0699 0.0755 0.1073 0.1235
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.3) 0.1115 0.1218 0.1492 0.1438 0.1983 0.1154 0.0753 0.0683 0.0762 0.1048 0.1225
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.3) 0.1286 0.1151 0.1632 0.1474 0.1943 0.1273 0.0786 0.068 0.0747 0.1018 0.126
Trend-based Regression w/Trad. VoL.(6, 3, 100, 0.3) 0.1236 0.1223 0.1633 0.1539 0.185 0.1269 0.0756 0.0689 0.0719 0.112 0.1261
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.7) 0.1341 0.1263 0.165 0.1235 0.1917 0.1291 0.0761 0.0648 0.0744 0.1101 0.1255
o
O
CDt Trend-based Regression w/Trad. Vol.(4, 2, 40, 0) 0.1177 0.1213 0.1485 0.1489 0.1993 0.1142 0.0792 0.0668 0.0756 0.1074 0.1239
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0) 0.1287 0.1267 0.1573 0.1498 0.197 0.1057 0.0836 0.0707 0.0741 0.1001 0.1254
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.2) 0.1239 0.1212 0.1468 0.1179 0.2031 0.1137 0.0782 0.0707 0.0748 0.1082 0.1217
Trend-based Regression w/Trad. Vol.(6, 3, 70, 0.5) 0.1402 0.1181 0.1685 0.1472 0.1871 0.1189 0.0805 0.0722 0.0758 0.1127 0.1277
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
is
 Trend-based Regression Algorithm with Trading Volume (W:V = 2:1) Trend-based Regression w/Trad. Vol. W, V,K, 1)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.4) 2.8071 1.0274 0.6236 0.172 0.6119 1.2396 -0.2242 -0.4936 1.5538 3.244 0.9205
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.3) 2.8482 1.6325 0.329 -0.4003 0.7046 1.2784 -0.1809 -0.1639 1.5714 2.7583 0.918
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.2) 2.6913 1.4177 0.2914 -0.5508 0.8589 1.6316 -0.2471 -0.0513 1.4615 2.5018 0.9011
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0) 2.3512 0.8752 0.1487 0.7647 0.1914 2.6323 0.1582 0.013 0.9659 2.3015 0.9002
Trend-based Regression w/Trad. Vol.(4, 2, 100, 0) 3.0414 1.0421 1.454 -1.0564 0.7025 1.321 0.1489 -0.4425 1.3544 1.9935 0.883
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.4) 1.7638 1.9507 1.8774 -0.622 -0.4554 2.1369 0.4704 0.957 1.241 1.285 0.871
Trend-based Regression w/Trad. Vol.(4, 2, 100, 0.1) 3.2624 0.9896 0.7268 -0.3755 0.674 0.8711 0.3294 -0.6843 1.1652 2.4551 0.8669
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.1) 3.0224 1.3563 0.6801 -1.1167 0.9242 1.3767 -0.0502 -0.5803 1.1811 2.3858 0.8508
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0) 3.156 1.2396 0.0802 -0.7997 1.1224 1.7727 -0.0996 -0.186 0.8269 1.9873 0.831
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0.1) 2.1459 0.812 0.0462 0.0967 0.6381 2.9768 -0.1451 -0.0748 0.9677 2.0501 0.8207
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.2) 2.2926 0.7998 0.5546 0.3671 0.5079 1.4521 -0.2447 0.1077 2.5802 0.8172 0.7874
Trend-based Regression w/Trad. vol.(4, 2, 70, 0.1) 2.3651 0.6922 -0.0637 0.0691 0.0265 2.8288 0.1612 0.1335 0.9488 2.5259 0.7831
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.3) 2.1188 0.6525 0.5895 0.0703 0.776 1.7948 -0.3773 0.1537 2.465 0.8133 0.7805
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.3) 1.8343 2.3296 1.5413 -0.6079 -0.6132 2.1656 -0.1375 0.9567 1.241 1.0804 0.7735
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.3) 1.2956 2.2221 1.0088 -0.2233 -0.1314 2.7925 0.3751 -0.006 1.3043 0.3214 0.7701
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.7) 1.8025 2.3026 0.8054 -0.7102 -0.4669 3.2106 0.4787 -0.0515 1.022 0.6932 0.7696
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0) 2.0213 0.4358 0.1592 0.3613 0.2572 2.407 0.0119 0.3702 2.1072 1.1598 0.7584
m
i- Trend-based Regression w/Trad. Vol.(4, 2, 50, 0) 2.1305 0.7415 -0.1464 -0.0866 0.5488 3.2766 -0.1553 -0.0905 1.0459 1.865 0.7567
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.2) 2.2414 0.4832 0.1 -0.0829 0.323 2.4147 0.0084 -0.2593 1.1135 2.4649 0.7477
Ill= Trend-based Regression w/Trad. Vol.(6, 3, 70, 0.5) 0.972 2.439 1.4987 -0.5045 -0.3413 3.3985 -0.1013 0.1073 1.2584 0.1637 0.7474
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
0D Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.4) 0.51 0.46 0.54 0.37 0.44 0.49 0.49 0.45 0.5 0.55 0.48
1Qu 0.54 0.48 0.54 0.5 0.46 0.52 0.54 0.51
Trend-based Regression w/Trad.Vol.(4, 2, 80, 0.3) 0.53 0.45 0.49
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.2) 0.52 0.47 0.52 0.44 0.52 0.51 0.48 0.47 0.53 0.53 0.5
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0) 0.52 0.48 0.5 0.49 0.51 0.51 0.5 0.48 0.52 0.49 0.5
0t Trend-based Regression w/Trad. Vol.(4, 2, 100, 0) 0.5 0.47 0.48 0.47 0.51 0.52 0.5 0.48 0.54 0.51 0.5
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.4) 0.49 0.46 0.49 0.38 0.56 0.52 0.52 0.48 0.53 0.5 0.49
Trend-based Regression w/Trad. Vol.(4, 2, 100, 0.1) 0.5 0.45 0.52 0.45 0.51 0.55 0.49 0.47 0.53 0.52 0.5
0 Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.1) 0.52 0.48 0.5 0.48 0.52 0.52 0.5 0.47 0.52 0.52 0.5
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0) 0.53 0.49 0.5 0.48 0.52 0.49 0.49 0.49 0.51 0.53 0.5
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0.1) 0.54 0.48 0.49 0.51 0.48 0.52 0.5 0.5 0.54 0.44 0.5
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.2) 0.49 0.48 0.48 0.5 0.5 0.53 0.48 0.47 0.54 0.45 0.49
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.1) 0.53 0.48 0.51 0.5 0.49 0.49 0.49 0.49 0.53 0.5 0.5
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.3) 0.48 0.46 0.5 0.48 0.5 0.53 0.49 0.45 0.53 0.45 0.49
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.3) 0.49 0.45 0.48 0.41 0.56 0.53 0.5 0.48 0.54 0.5 0.49
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.3) 0.51 0.49 0.44 0.44 0.5 0.54 0.47 0.47 0.52 0.5 0.49
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.7) 0.49 0.47 0.42 0.38 0.51 0.52 0.49 0.4 0.52 0.51 0.47
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0) 0.5 0.48 0.48 0.49 0.51 0.5 0.48 0.46 0.5 0.47 0.49
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0) 0.53 0.48 0.49 0.53 0.49 0.51 0.48 0.49 0.53 0.45 0.5
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.2) 0.51 0.48 0.53 0.45 0.49 0.52 0.48 0.48 0.52 0.51 0.5
Trend-based Regression w/Trad. Vol.(6, 3, 70, 0.5) 0.48 0.46 0.46 0.46 0.5 0.46 0.52 0.52 0.57 0.49 0.49
 -.4

cD

CD

0
ý7

Trend-based Regression Algorithm with Trading Volume (W:V = 2:1) Trend-based Regression w/Trad. Vol.(W, V, K, 8)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.4) 105 113 124 73 109 102 118 115 125 118 110.2
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.3) 113 121 128 79 117 122 130 125 129 122 118.6
CN
os <
o Trend-based Regression w/Trad. Vol.(4,
Trend-based Regression w/Trad. Vol.(4,
2, 80, 0.2)
2, 70, 0)
121
145
125
129
132
146
93
121
123
132
134
151
133 138 131 126 125.6
146 147 133 142 139.2
Trend-based Regression w/Trad. Vol.(4, 2, 100, 0) 131 137 138 123 132 149 155 136 145 138 138.4
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.4) 114 115 109 116 128 126 125 129 124 135 122.1
Trend-based Regression w/Trad. Vol.(4, 2, 100, 0.1) 129 131 130 103 128 145 145 126 139 130 130.6
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0.1) 127 127 142 105 127 140 143 140 131 130 131.2
Trend-based Regression w/Trad. Vol.(4, 2, 80, 0) 135 137 152 119 135 156 149 144 133 136 139.6
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0.1) 132 130 124 124 126 144 135 140 138 133
J 132.6
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.2) 129 130 112 114 132 135 148 138 138 119 129.5
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.1) 131 123 138 113 126 145 140 139 131 138 132.4
Trend-based Regression w/Trad. Vol.(4, 2, 40, 0.3) 123 128 110 106 126 129 142 132 132 119 124.7
Trend-based Regression w/Trad. Vol.(6, 3, 6, 30, 0.3) 120 121 115 118 132 130 131 131 130 139 126.7
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.3) 120 121 117 116 142 140 127 133 136 136 128.8
Trend-based Regression w/Trad. Vol.(6, 3, 100, 0.7) 98 103 101 94 108 110 107 101 122 124 106.8
03 Trend-based Regression w/Trad. Vol.(4, 2, 40, 0) 139 136 128 126 148 151 154 146 150
e. 125 140.3
Trend-based Regression w/Trad. Vol.(4, 2, 50, 0) 142 132 130 135 133 148 145 142 144
r\3 135 138.6
Trend-based Regression w/Trad. Vol.(4, 2, 70, 0.2) 125 123 130 99 116 135 136 135 131
OQ 132 126.2
Trend-based Regression w/Trad. Vol.(6, 3, 70, 0.5) 110 117 113 100 120 110 125 131 116 125 116.7
©r

1
v
 Trend-based Regression with Multiple Variables: TBR(vl, W1; v2, W2; . vm, Wm; K, )
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 104 weeks, 0) 0.1483 0.2783 0.1603 -0.1466 -0.0018 0.1731 0.1107 0.0144 0.1241 0.1069 0.0909
TBR(Index Return, 1; Chg of Rf Rate, 1; 78 weeks, 0) 0.1485 0.2943 0.1457 -0.056 0.0032 0.2524 0.0331 0.0198 0.1423 -0.0208 0.0906
TBR(Index Return 1; Ch of Trad.Vol., 1; Chg of Rf Rate, 1; 104 weeks, 0) 0.1578 0.3115 0.1514 -0.1589 0.0502 0.1826 0.1107 0.0173 0.1118 0.0297 0.0898
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 130 weeks, 0) 0.1307 0.2921 0.1506 -0.1304 0.0798 0.086 0.1014 0.0194 0.1058 0.0998 0.0888
TBR(Index Return, 1; Chg of Trad.Vol., 1; 78 weeks, 0) 0.2503 0.2936 0.0904 -0.1746 0.028 0.2244 0.0552 0.0203 0.119 0.0582 0.0885
TBR(Index Return, 1; Chg of Rf Rate, 1; 63 days, 0) 0.3365 0.1534 -0.0322 0.0019 0.0174 0.2041 0.1685 0.0475 0.0278 -0.0025 0.0867
TBR(Index Return, 1; Chg of VIX, 1; 104 weeks, 0) 0.1611 0.2369 0.1431 -0.1629 0.0701 0.1251 0.0674 0.023 0.1139 0.1216 0.0848
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 52 weeks, 0) 0.1859 0.328 0.0623 -0.1158 0.1468 0.1704 0.0253 -0.0434 0.094 0.0426 0.0831
TBR(Index Return, 1; Chg of Rf Rate, 1; 126 days, 0) 0.2041 0.0836 0.019 -0.0205 0.1173 0.1265 0.1005 -0.0004 0.1232 0.061 0.0795
C OC
TBR(Index Return, 1; Chg of VIX, 1; 78 weeks, 0) 0.1843 0.1907 0.0833 -0.1281 0.1581 0.0608 0.0326 0.03 0.1437 0.0742 0.0789
TBR(Index Return, 1; Chq of Rf Rate, 1; 84 days, 0) 0.2345 0.1141 0.1126 -0.0388 -0.0018 0.1845 0.0788 0.048 0.0697 0.016 0.0789
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 105 days, 0) 0.2742 0.1227 0.0119 -0.0136 0.0084 0.129 0.0701 0.0435 0.0788 0.0869 0.0784
TBR(Index Return, 1; Chg of Rf Rate, 1; 104 weeks, 0) 0.1432 0.3115 0.1462 -0.1854 0.0214 0.1796 0.0513 0.0232 0.1346 0.0182 0.0768
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 78 weeks, 0) 0.118 0.1987 0.0805 -0.002 -0.1028 0.3185 0.0808 0.0398 0.0953 -0.0158 0.0755
TBR(Index Return, 1; Chg of Rf Rate, 1; 105 days, 0) 0.264 0.0324 0.0908 -0.0151 0.0638 0.1436 0.0773 -0.0045 0.0823 0.0389 0.0748
TBR(Index Return, 1; Chg of Trad.Vol., 1; 104 weeks, 0) 0.2188 0.2609 0.1506 -0.2558 -0.0224 0.1886 0.1107 0.03 0.1107 0.0584 0.0748
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 130 weeks, 0) 0.0885 0.2812 0.1763 -0.2145 0.0597 0.1452 0.0965 0.0082 0.087 0.0942 0.0748
TBR(Index Return, 1; Chg of Trad.Vol., 1; 52 weeks, 0) 0.2503 0.3224 0.0289 -0.2297 0.0823 0.2547 0.0226 -0.0341 0.0898 0.0717 0.0746
TBR(Index Return, 1; Chg of Rf Rate, 1; 130 weeks, 0) 0.1139 0.2757 0.1506 -0.178 0.031 0.1457 0.0392 0.0294 0.0839 0.1019 0.0733
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chq of Rf Rate, 1; Chg of VIX, 1; 104 weeks, 0) 0.1029 0.2783 0.1514 -0.1575 -0.0173 0.1985 0.0773 0.0146 0.0946 0.0483 0.0728
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
O-q TBR(Index Return, 1; Ch of Trad.Vol., 1; Chg of VIX, 1; 104 weeks, 0) 0.1725 0.1499 0.1872 0.1378 0.1253 0.0865 0.0883 0.1013 0.0906 0.1294 0.1313
0.1421 0.1276
-io TBR(Index Return, 1; Chg of Rf Rate, 1; 78 weeks, 0)
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 104 weeks, 0)
0.1747
0.1759
0.1412
0.1481
0.1844
0.1855
0.1112
0.1325
0.1034
0.0706
0.0869
0.0988
0.1003
0.0883
0.0979
0.1009
0.0887
0.0813 0.1314 0.1271
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 130 weeks, 0) 0.1755 0.1542 0.189 0.1662 0.1331 0.0776 0.0812 0.1003 0.098 0.1332 0.1363
TBR(Index Return, 1; Chg of Trad.Vol., 1; 78 weeks, 0) 0.1782 0.1367 0.1802 0.1181 0.1204 0.094 0.1012 0.0995 0.0856 0.1382 0.1291
TBR(Index Return, 1; Chg of Rf Rate, 1; 63 days, 0) 0.1359 0.1452 0.166 0.0961 0.1397 0.1411 0.0794 0.0792 0.0749 0.1203 0.1218
TBR(Index Return, 1; Chg of VIX, 1; 104 weeks, 0) 0.1691 0.153 0.1894 0.1526 0.0726 0.0655 0.0914 0.1018 0.091 0.1298 0.1283
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 52 weeks, 0) 0.164 0.1414 0.1667 0.1161 0.1334 0.1199 0.1056 0.0812 0.0814 0.1351 0.1277
TBR(Index Return, 1; Chg of Rf Rate, 1; 126 days, 0) 0.1487 0.1552 0.1788 0.0848 0.1274 0.1299 0.089 0.0875 0.0821 0.1364 0.1263
TBR(Index Return, 1; Chg of VIX, 1; 78 weeks, 0) 0.1654 0.1499 0.1822 0.1385 0.1057 0.0651 0.1039 0.0939 0.087 0.1344 0.1276
TBR(Index Return, 1; Chg of Rf Rate, 1; 84 days, 0) 0.1308 0.156 0.1562 0.0859 0.1488 0.1367 0.0858 0.0839 0.0749 0.1294 0.1228
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 105 days, 0) 0.1379 0.1519 0.1703 0.0895 0.1209 0.1384 0.0925 0.0826 0.077 0.1292 0.1228
TBR(Index Return, 1; Chg of Rf Rate, 1; 104 weeks, 0) 0.1753 0.1481 0.1851 0.1276 0.1067 0.0812 0.0938 0.1013 0.0878 0.1341 0.1288
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 78 weeks, 0) 0.167 0.1541 0.1865 0.1313 0.092 0.0853 0.1001 0.0956 0.0851 0.1545 0.1303
go TBR(Index Return, 1; Chg of Rf Rate, 1; 105 days, 0) 0.1415 0.155 0.1801 0.082 0.1343 0.1343 0.0918 0.0845 0.0779 0.1361 0.1263
TBR(Index Return, 1; Chg of Trad.Vol., 1; 104 weeks, 0) 0.1843 0.1463 0.189 0.1445 0.1294 0.0866 0.0883 0.1027 0.0898 0.1346 0.1344
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 130 weeks, 0) 0.1858 0.1516 0.1926 0. 1543 0.1164 0.0881 0.0767 0.0992 0.0958 0.1251 0.1343
TBR(Index Return, 1; Chg of Trad.Vol., 1; 52 weeks, 0) 0.1782 0.1419 0.1898 0.0945 0.1365 0.1147 0.1071 0.0895 0.088 0.1383 0.1323
TBR(Index Return, 1; Chg of Rf Rate, 1; 130 weeks, 0) 0.1864 0.152 0.189 0.1614 0.1128 0.07 0.0766 0.1015 0.0955 0.1242 0.1334
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; Chq of VIX, 1; 104 weeks, 0) 0.1705 0.1499 0.1855 0.1472 0.094 0.1007 0.0864 0.1008 0.0865 0.1276 0.1296
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1109 0.1027 0.1004 0.1596 0.1802

SCO
 OO Trend-based Regression with Multiple Variables: TBR(v1, W:; v2, W2; Win; K,
vmrn, _)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
,-t • TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 104 weeks, 0) 0.8597 1.8567 0.8561 -1.0634 -0.0142 2.001 1.2538 0.1417 1.3701 0.8266 0.7483
0 TBR(Index Return, 1; Chg of Rf Rate, 1; 78 weeks, 0) 0.8498 2.0845 0.7901 -0.5037 0.0309 2.9039 0.33 0.2017 1.6042 -0.1461 0.7461
TBR(Index Return, 1; Chg ofTrad.Vol., 1; Chg of Rf Rate, 1; 104 weeks, 0) 0.8973 2.1036 0.8159 -1.1989 0.712 1.8474 1.2538 0.1714 1.375 0.2259 0.7394
O TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 130 weeks, 0) 0.7448 1.8936 0.7966 -0.7843 0.5991 1.1088 1.2487 0.1936 1.08 0.7493 0.7311
__ TBR(Index Return, 1; Chg of Trad.Vol., 1; 78 weeks, 0) 1.4043 2.1478 0.5015 -1.4783 0.2324 2.387 0.5453 0.2045 1.391 0.4209 0.7292
TBR(Index Return, 1; Chg of Rf Rate, 1; 63 days, 0) 2.4769 1.0564 -0.1941 0.0201 0.1243 1.4465 2.1223 0.5994 0.3711 -0.0211 0.7144
TBR(Index Return,1; Chg ofVIX, 1; 104 weeks, 0) 0.9527 1.5486 0.7557 -1.0676 0.9663 1.9112 0.7379 0.2262 1.2507 0.9364 0.6986
S TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 52 weeks, 0) 1.133 2.3196 0.3737 -0.9976 1.1002 1.4209 0.2392 -0.5351 1.1547 0.3154 0.6841
CD TBR(Index Return, 1; Chg of Rf Rate, 1; 126 days, 0) 1.3729 0.5387 0.1061 -0.2422 0.9203 0.9735 1.1289 -0.0042 1.5012 0.4469 0.6546
- c / TBR(Index Return, 1; Chg of VIX, 1; 78 weeks, 0) 1.114 1.2721 0.457 -0.925 1.4955 0.9339 0.3138 0.3194 1.6521 0.5524 0.6502
TBR(Index Return, 1; Chg of Rf Rate, 1; 84 days, 0) 1.7921 0.7313 0.7214 -0.4511 -0.012 1.3499 0.9186 0.5719 0.9299 0.1236 0.6498
O TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 105 days, 0) 1.988 0.8076 0.0697 -0.1524 0.0695 0.9318 0.7582 0.5266 1.0228 0.6727 0.6461
TBR(Index Return, 1; Chg of Rf Rate, 1; 104 weeks, 0) 0.8167 2.1036 0.79 -1.4525 0.2003 2.2132 0.5472 0.2294 1.5341 0.136 0.6327
C TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 78 weeks, 0) 0.7064 1.2892 0.4314 -0.015 -1.1168 3.7336 0.8076 0.4165 1.1205 -0.1022 0.622
C TBR(Index Return, 1; Chg of Rf Rate, 1; 105 days, 0) 1.8656 0.2089 0.5044 -0.1843 0.475 1.0694 0.8414 -0.053 1.0563 0.2856 0.6158
o TBR(Index Return, 1; Chg of Trad.Vol., 1; 104 weeks, 0) 1.1872 1.7832 0.7966 -1.7702 -0.173 2.1774 1.2538 0.2923 1.2328 0.4337 0.6157
O TBR(Index Return, 1;Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 130 weeks, 0) 0.4765 1.8547 0.9154 -1.3908 0.513 1.649 1.2581 0.0828 0.9088 0.753 0.6157
STBR(Index Return, 1; Chg of Trad.Vol., 1; 52 weeks, 0) 1.4043 2.2718 0.1521 -2.4315 0.6026 2.2205 0.211 -0.3808 1.0212 0.5184 0.6141
STBR(Index Return,1 Chg ofRf Rate,1; 130 weeks, 0) 0.6113 1.8133 0.7966 -1.103 0.2751 2.0832 0.5114 0.2893 0.8785 0.8201 0.6035
N ~-. ,
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; Chg of VIX, 1; 104 weeks, 0)
Buy-and-Hold
0.6033 1.8567 0.8159 -1.0701 -0.1843 1.9719 0.8941 0.1445 1.0925 0.3783 0.5997
1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
t" TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 104 weeks, 0) 0.68 0.66 0.67 0.31 0.13 0.31 0.65 0.96 0.8 0.61 0.58
TBR(Index Return, 1; Chg of Rf Rate, 1; 78 weeks, 0) 0.73 0.6 0.65 0.23 0.14 0.26 0.85 0.83 0.67 0.77 0.57
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 104 weeks, 0) 0.78 0.66 0.67 0.34 0.12 0.33 0.65 0.94 0.62 0.65 0.58
TBR(Index Return, 1; Chg of Trad.Vol., 1; Ch 9 of VIX, 1; 130 weeks, 0) 0.74 0.68 0.69 0.44 0.24 0.25 0.53 0.92 0.88 0.67 0.61
TBR(Index Return, 1; Chg of Trad.Vol., 1; 78 weeks, 0) 0.75 0.58 0.62 0.23 0.19 0.34 0.87 0.94 0.73 0.71 0.6
TBR(Index Return, 1; Chg of Rf Rate, 1; 63 days, 0) 0.68 0.71 0.52 0.32 0.4 0.64 0.58 0.6 0.67 0.62 0.57
TBR(Index Return, 1; Chg of VIX, 1; 104 weeks, 0) 0.67 0.68 0.7 0.27 0.06 0.17 0.71 0.98 0.82 0.58 0.56
I! w TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 52 weeks, 0) 0.65 0.6 0.63 0.3 0.24 0.56 0.9 0.51 0.59 0.73 0.57
__ P3 TBR(Index Return, 1; Chg of Rf Rate, 1; 126 days, 0) 0.73 0.79 0.59 0.16 0.34 0.65 0.63 0.67 0.7 0.74 0.6
TBR(Index Return, 1; Chg of VIX, 1; 78 weeks, 0) 0.64 0.64 0.67 0.23 0.08 0.19 0.9 0.87 0.72 0.69 0.56
- TBR(Index Return, 1; Chg of Rf Rate, 1; 84 days, 0) 0.67 0.77 0.56 0.24 0.44 0.65 0.58 0.6 0.67 0.67 0.59
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 105 days, 0) 0.71 0.73 0.55 0.22 0.37 0.64 0.69 0.63 0.71 0.72 0.6
TBR(Index Return, 1;Chg of Rf Rate, 1; 104 weeks, 0) 0.76 0.66 0.67 0.3 0.15 0.18 0.69 0.96 0.65 0.66 0.57
3 C TBR(Ch 9 of Rf Rate, 1; Chg of VIX, 1; 78 weeks, 0) 0.64 0.68 0.69 0.23 0.12 0.26 0.81 0.79 0.65 0.92 0.58
TBR(Index Return, 1; Chg of Rf Rate, 1; 105 days, 0) 0.72 0.76 0.6 0.18 0.4 0.64 0.63 0.63 0.69 0.7 0.6
CD TBR(Index Return, 1; Chg of Trad.Vol., 1; 104 weeks, 0) 0.82 0.64 0.69 0.33 0.15 0.32 0.65 1 0.83 0.67 0.61
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 130 weeks, 0) 0.76 0.68 0.71 0.36 0.23 0.26 0.47 0.92 0.82 0.63 0.58
r TBR(Index Return, 1; Chg of Trad.Vol., 1; 52 weeks, 0) 0.75 0.62 0.7 0.14 0.23 0.5 0.94 0.73 0.76 0.75 0.61
S TBR(Index Return, 1; Chg of Rf Rate, 1; 130 weeks, 0) 0.78 0.7 0.69 0.42 0.17 0.1 0.42 0.96 0.83 0.6 0.57
S TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; Chg of VIX, 1; 104 weeks, 0) 0.64 0.66 0.67 0.38 0.15 0.33 0.61 0.94 0.65 0.61 0.57

CE
 rCD

r-- H
Cl
o t

Trend-based Regression with Multiple Variables: TBR(vl, W1; v2, W2; vm, Wm; K, 8 )
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chq of VIX, 1; 104 weeks, 0) 31 27 28 20 14 27 26 4 16 32 22.5
TBR(Index Return, 1; Chg of Rf Rate, 1; 78 weeks, 0) 23 32 26 16 8 20 11 12 26 17 19.1
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 104 weeks, 0) 22 29 26 24 12 27 26 6 16 28 21.6
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of VIX, 1; 130 weeks, 0) 24 27 26 20 20 23 30 8 12 28 21.8
•Cl TBR(Index Return, 1; Chg of Trad.Vol., 1; 78 weeks, 0) 26 31 28 16 15 30 10 6 24 26 21.2
TBR(Index Return, 1; Chg of Rf Rate, 1; 63 days, 0) 67 68 105 63 102 115 89 90 72 121 89.2
TBR(Index Return, 1; Chg of VIX, 1; 104 weeks, 0) 32 25 25 15 6 18 15 2 14 33 18.5
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chq of Rf Rate, 1; 52 weeks, 0) 28 31 26 23 24 27 11 27 29 22 24.8
Or3 TBR(Index Return, 1; Chg of Rf Rate, 1; 126 days, 0) 69 50 95 60 86 104 89 108 86 87 83.4
r 0I
tQ3 o CI TBR(Index Return, 1; Chg of VIX, 1; 78 weeks, 0) 33 27 29 13 8 16 9 10 20 23 18.8
cD TBR(Index Return, 1; Chg of Rf Rate, 1; 84 days, 0) 65 74 87 61 97 114 97 102 76 100 87.3
TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 105 days, 0) 69 68 103 72 76 98 68 114 77 90 83.5
TBR(Index Return, 1; Chg of Rf Rate, 1; 104 weeks, 0) 22 29 24 18 10 14 17 4 18 25 18.1
Cl "3 TBR(Chg of Rf Rate, 1; Chg of VIX, 1; 78 weeks, 0) 29 27 20 16 8 17 12 14 24 7 17.4
001 TBR(Index Return, 1; Chg of Rf Rate, 1; 105 days, 0) 67 60 97 56 94 112 91 114 78 101 87
TBR(Index Return, 1; Chg of Trad.Vol., 1; 104 weeks, 0) 20 29 26 18 14 27 26 0 16 28 20.4
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; 130 weeks, 0) 20 29 24 22 18 21 30 8 12 30 21.4
TBR(Index Return, 1; Chg of Trad.Vol., 1; 52 weeks, 0) 26 29 26 13 18 27 7 25 21 22 21.4
TTBR(Index Return, 1; Ch9 of Rf Rate, 1; 130 weeks, 0) 18 27 26 22 12 8 23 4 14 29 18.3
TBR(Index Return, 1; Chg of Trad.Vol., 1; Chg of Rf Rate, 1; Chg of VIX, 1; 104 weeks, 0) 29 27 26 24 12 25 24 6 18 30 22.1

Cl

;11

Ecl
112r
 CD

__ Conditional Probability Table: CP(vl, v2, ... vm; K)

_ _ _
__Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
S CPT(Index Return, Chg of VIX; 78 weeks) 0.2828 0.2332 0.0527 -0.0192 -0.0188 0.3563
CPT(Index Return, Ch of Trad.Vol., Chg of Rf Rate; 126 days) 0.0721 0.0493 0.1246 0.0057 0.1071
0.2538 0.0948 0.2863 -0.0061 -0.1508 0.359 0.0103 -0.0387 0.1699 0.1929 0.1063
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 105 days) 0.2617 0.0591 0.2146 0.0608 -0.0774 0.2854 0.0172 -0.0251 0.1771 0.0584 0.0969
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 84 days) 0.1883 0.1172 0.223 -0.0065 -0.07 0.25 0.0613 -0.0298 0.1822 0.0418 0.0905
." CFrPT(Index Return, Ch of Trad.Vol. Ch of Rf Rate Ch of VIX; 126 days) 0.1738 0.1163 0.1104 0.0081 -0.1166 0.2614 0.0382 -0.0057 0.1656 0.1821 0.088
(D CPT(Index Return, Chq of VIX; 105 days) 0.0717 0.1817 0.0363 0.036 -0.1385 0.2992 0.0959 0.0073 0.2167 0.1304 0.0874
CPT(Chg of Trad.Vol., Chg of Rf Rate; 78 weeks) 0.2385 0.1672 -0.0804 0.0052 0.0898 0.1386 0.0155 0.0277 0.1325 0.0927 0.0791
CPT(Index Return, Chg of Rf Rate; 52 weeks) 0.2055 0.1915 -0.0008 0.011 -0.1401 0.2926 -0.0014 0.0105 0.0986 0.1235 0.0722
S CPT(Chg of Trad.Vol., Chg of Rf Rate; 130 weeks) 0.2667 0.1808 -0.0716 -0.1636 0.1261 0.1139
CPT(Chg of Trad.Vol., Chg of Rf Rate; 105 days) 0.0469 0.0341 0.1591 0.0881 0.0712
0.206 0.1581 0.0667 -0.061 -0.0464 0.2396 0.0671 -0.0273 0.1072 0.0404 0.0705
S CPT(Chg of Rf Rate, Chg of VIX; 126 days) 0.1187 0.1208 0.0794 0.083 -0.0146 0.1084 0.0691 -0.0153 0.1321 0.021 0.069
CPT(Chg of Trad.Vol., Cho of Rf Rate, Chq of VIX; 104 weeks) 0.2419 0.177 0.0936 -0.1296 -0.0945 0.1347 0.097 0.011 0.1134 0.0781 0.0665
CPT(Index Return, Chg of Rf Rate, Chg of VIX; 105 days) 0.0982 0.1184 -0.0105 0.0506 -0.0088 0.1553 0.0496 -0.0362 0.148 0.1108 0.0655
CPT(Chg ofTrad.Vol., Chg of Rf Rate; 126 days)
S 0.1477 0.1766 0.1636 -0.0165 -0.0668 0.1536 -0.0177 -0.085 0.0885 0.1558 0.0652
CPT(Chg of Trad.Vol., Cha of VIX; 156 weeks) 0.2667 0.1877 0.087 -0.0228 -0.1868
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 0.1331 0.0384 0.0171 0.1656 0.0353 0.065
104 weeks) 0.3541 0.1201 0.0475 -0.1393 -0.1029 0.1094 0.0804 0.0693 0.1222 0.052 0.0638
,CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 105 days) 0.2084 0.1041 0.0022 -0.0248 -0.1447 0.2507
(D 1 0.0848 -0.0291 0.1534 0.084 0.0627
+ CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 78 weeks) 0.279 0.2075 0.0197 -0.0938
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 105 days) -0.0079 0.1213 0.0266 -0.0161 0.0966 0.0332 0.0615
0.2376 0.1356 -0.0412 -0.1008 -0.1225 0.2115 0.1265 -0.0078 0.1552 0.0873 0.061
C"
0O CPT(Chg of Trad.Vol., Ch 9 of Rf Rate; 156 weeks) 0.2667 0.1953 -0.0628 -0.1559 -0.0896 0.1361 0.1322 0.0384 0.158 0.0716 0.061
S Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353
OH
CII) H Volatilities
CPT(Index Return, Ch of VIX; 78 weeks)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
0.0423
1998-2007
0.1958 0.1748 0.1839 0.1103 0.1357 0.1204 0.0936 0.1001 0.1 0.1574
J ' CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 126 days) 0.1419
0.1631 0.1388 0.1625 0.0984 0.1536 0.13 0.1002 0.0802 0.0791
t..N CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 105 days) 0.1408 0.1285
0.1539 0.1408 0.163 0.1059 0.1614 0.1255 0.1008 0.08 0.0771 0.1361 0.1281
> CT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 84 days) 0.1524 0.1372 0.1691 0.0985 0.1433 0.1218 0.0957 0.0806 0.0738 0.1304 0.124
n CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 126 days) 0.1667 0.1361 0.1698 0.1006 0.1615 0.1206 0.1002 0.0847 0.0747 0.1286 0.1285
j 0 CPT(Index Return, Chg of VIX 105 days) 0.1402 0.1454 0.1771 0.0923 0.1186 0.1135 0.1036
j 0.0859 0.0866 0.1376 0.1234
CPT(Chg of Trad.Vot., Chg of Rf Rate; 78 weeks) 0.1734 0.1769 0.1545 0.084
I. 0.154 0.1174 0.0985 0.0928 0.086 0.1445 0.1328
CPT(Index Return, Chg of Rf Rate; 52 weeks) 0.1957 0.1617 0.156 0.1011 0.2068 0.128 0.0927 0.088 0.0921
r
S
~ CPT(Chg of Trad.Vol., Chg of Rf Rate; 130 weeks)
CPT(Chg of Trad.Vol., Chg of Rf Rate; 105 days) 0.2031 0.1758 0.1956 0.1247 0.158 0.1177 0.0783 0.0882 0.084
0.1454
0.1455
0.1429
0.1438
0.1591 0.1467 0.1653 0.1105 0.1421 0.1006 0.1009 0.0937 0.0793 0.1351 0.1266
ýj CPT(Chg of Rf Rate, Chg of VIX; 126 days) 0.1702 0.1463 0.1635 0.1035 0.1255 0.1026 0.1044 0.0941 0.0804 0.1456 0.1271
. ! CPT(Chg of Trad.Vol.. Chg of Rf Rate, Chq of VIX; 104 weeks) 0.189 0.1743 0.1972 0.1388 0.1594 0.1282 0.0786 0.0962 0.0815 0.143 0.1444
CPT(Index Return, Chg of Rf Rate, Chg of VIX; 105 days) 0.1356 0.1373 0.1761 0.104 0.1397 0.1053 0.1021 0.0906 0.073 0.143 0.1241
CPT(Chg of Trad.Vol., Chg of Rf Rate; 126 days) 0.1701 0.1484 0.1507 0.0902 0.1372 0.0987 0.0979 0.0923 0.077 0.1406 0.1242
CPT(Chg ofTrad.Vol., Chq of VIX; 156 weeks) 0.2031 0.1767 0.1995 0.1961 0.2125 0.0889 0.0768 0.0847 0.0897 0.1596 0.1582
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 0.1919 0.1707 0.1997 0.1418 0.1655 0.1173 0.0805 0.0978 0.0857 0.1481 0.1458
ci g CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 105 days) 0.1352 0.1338 0.171 0.113 0.167 0.1123 0.1013 0.0844 0.0671 0.133 0.1258
U- CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 78 weeks) 0.1966 0.1751 0.1984 0.1391 0.1757 0.1031 0.0942 0.09 0.0978 0.1561 0.1485
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 105 days) 0.1578 0.1457 0.1716 0.1272 0.1302 0.1154 0.0979 0. 0.07 0.0747 0.1355 0.1272
c CPT(Chg of Trad.Vol., Cho of Rfate; 156 weeks) 0.2031 0.1808 0.2088 0.1294 0.1583 0.1188 0.0779 0.0879 0.0834 0.1554 0.1478
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Conditional Probability Table: CPT(vl, v2, ... vm; K)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
CPT(Index Return, Chg of VIX; 78 weeks) 1.4439 1.3344 0.2864 -0.1738 -0.1383 2.9602 0.7699 0.4919 1.2467 0.0365 0.8608
CDco 1.5562 0.6827 1.7613 -0.0619 -0.9818 2.7607 0.1032 -0.4823 2.1496 1.3696 0.8542
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 126 days)
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 105 days) 1.7007 0.4196 1.3161 0.5737 -0.4796 2.2733 0.1708 -0.3137 2.2977 0.4291 0.7793
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 84 days) 1.2353 0.8545 1.3187 -0.0661 -0.4889 2.0518 0.64 -0.3697 2.4703 0.3203 0.7274
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 126 days) 1.0426 0.8552 0.6504 0.0805 -0.7219 2.1683 0.3809 -0.067 2.2158 1.4158 0.7077
CPT(Index Return, Chg of VIX; 105 days) 0.5115 1.2492 0.2052 0.3904 -1.1675 2.6364 0.9256 0.0848 2.5024 0.9482 0.7024
CPT(Chg of Trad.Vol., Chg of Rf Rate; 78 weeks) 1.3753 0.9451 -0.5206 0.0621 0.5827 1.1804 0.1572 0.2985 1.5409 0.6415 0.636
CPT(Index Return, Chg of Rf Rate; 52 weeks) 1.0501 1.185 -0.0054 0.1088 -0.6775 2.2862 -0.0155 0.1188 1.0703 0.8493 0.5806
CPT(Chg of Trad.Vol., Chg of Rf Rate; 130 weeks) 1.3129 1.0284 -0.3661 -1.3119 0.7983 0.9678 0.5997 0.3871 1.893 0.6055 0.5723
CPT(Chg of Trad.Vol., Chg of Rf Rate; 105 days) 1.295 1.0779 0.4032 -0.5522 -0.3267 2.3831 0.6652 -0.2918 1.3517 0.2989 0.5671
CPT(Chg of Rf Rate, Chg of VIX; 126 days) 0.6974 0.8261 0.4859 0.8022 -0.1165 1.0566 0.662 -0.1625 1.6438 0.1441 0.5544
CPT(Chc of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 1.2801 1.0154 0.4746 -0.9337 -0.5926 1.0507 1.2348 0.1142 1.3909 0.546 0.5343
CPT(Index Return, Chg of Rf Rate, Chg of VIX; 105 days) 0.7243 0.8619 -0.0596 0.4864 -0.0633 1.4743 0.4857 -0.4001 2.0263 0.7752 0.5266

PD
C•
5-' CPT(Chg of Trad.Vol., Chg of Rf Rate; 126 days)
CPT(Chg of Trad.Vol., Chg of VIX; 156 weeks)
0.8681
1.3129
1.1906
1.0625
1.0856
0.4359
-0.1835
-0.1165
-0.4867
-0.879
1.556
1.4977
-0.1809
0.5008
-0.9208
0.2025
1.1494
1.8458
1.1083
0.2212
0.5245
0.5224
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 1.8453 0.7037 0.238 -0.9821 -0.6214 0.9321 0.9985 0.7083 1.4255 0.3509 0.5129
n
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 105 days) 1.5409 0.7781 0.0131 -0.2195 -0.8665 2.2327 0.8368 -0.344 2.2847 0.6312 0.504
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 78 weeks) 1.4191 1.1848 0.0994 -0.6744 -0.0449 1.1769 0.2822 -0.1795 0.9876 0.213 0.4947
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 105 days) 1.506 0.9311 -0.2401 -0.7926 -0.9406 1.8324 1.2923 -0.0985 2.0771 0.6444 0.4908
CPT(Chg of Trad.Vol., Chg of Rf Rate; 156 weeks) 1.3129 1.0802 -0.3009 -1.2045 -0.5657 1.1456 1.6965 0.4372 1.8957 0.4608 0.4902
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
CPT(Index Return, Chg of VIX; 78 weeks) 0.86 0.96 0.6 0.23 0.25 0.42 0.65 0.98 0.98 0.94 0.69
oO9 CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 126 days) 0.64 0.58 0.47 0.27 0.39 0.54 0.76 0.65 0.65 0.75 0.57
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 105 days) 0.63 0.6 0.48 0.29 0.39 0.53 0.77 0.66 0.64 0.75 0.57
CPT(Index Return, Chg of Trad.Vol., Chq of Rf Rate; 84 days) 0.63 0.58 0.53 0.3 0.39 0.53 0.73 0.61 0.61 0.68 0.56
0 CPT(Index Return, Chq of Trad.Vol., Chg of Rf Rate, Chq of VIX; 126 days) 0.62 0.56 0.49 0.29 0.4 0.52 0.78 0.67 0.6 0.68 0.56
"cII CPT(Index Return, Chg of VIX; 105 days) 0.72 0.64 0.61 0.13 0.28 0.53 0.85 0.71 0.72 0.75 0.59
CPT(Chg of Trad.Vol., Chg of Rf Rate; 78 weeks) 0.81 0.96 0.47 0.15 0.38 0.48 0.79 0.77 0.69 0.79 0.63
CPT(Index Return, Chg of Rf Rate; 52 weeks) 0.83 0.77 0.58 0.23 0.56 0.54 0.69 0.73 0.84 0.87 0.66
CPT(Chg of Trad.Vol., Chg of Rf Rate; 130 weeks) 1 0.94 0.73 0.23 0.41 0.5 0.48 0.74 0.69 0.85 0.66
CPT(Chg of Trad.Vol., Chg of Rf Rate; 105 days) 0.59 0.66 0.46 0.26 0.31 0.41 0.82 0.8 0.67 0.84 0.58
CPT(Chg of Rf Rate, Chg of VIX; 126 days) 0.69 0.66 0.45 0.2 0.31 0.47 0.89 0.83 0.69 0.82 0.6
CPT(Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 0.8 0.87 0.73 0.35 0.46 0.56 0.51 0.83 0.63 0.79 0.65
CPT(Index Return, Chg of Rf Rate, Chg of VIX; 105 days) 0.65 0.62 0.55 0.19 0.32 0.47 0.81 0.7 0.57 0.76 0.56
CPT(Chg of Trad.Vol., Chg of Rf Rate; 126 days) 0.67 0.66 0.44 0.22 0.35 0.42 0.79 0.83 0.65 0.87 0.59
CPT(Chg of Trad.Vol., Chg of VIX; 156 weeks) 1 0.92 0.74 0.74 0.54 0.23 0.45 0.67 0.71 1 0.7
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 0.87 0.84 0.77 0.37 0.44 0.48 0.49 0.9 0.68 0.81 0.66
CPT(Index Return, Ch, of Trad.Vol., Chg of Rf Rate, Chg of VIX; 105 days) 0.6 0.56 0.48 0.27 0.36 0.5 0.78 0.67 0.57 0.69 0.55
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 78 weeks) 0.88 0.91 0.71 0.4 0.37 0.34 0.66 0.71 0.9 0.92 0.68
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 105 days) 0.66 0.63 0.54 0.28 0.37 0.5 0.75 0.62 0.6 0.75 0.57
CPT(Chq of Trad.Vol., Chg of Rf Rate; 156 weeks) 1 1 0.85 0.26 0.45 0.52 0.45 0.72 0.67 0.92 0.68
 Conditional Probability Table: CPT(vl, v2, ... vm; K)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
CPT(Index Return, Chg of VIX; 78 weeks) 7 2 30 14 14 31 20 3 2 4 12.7
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 126 days) 108 97 90 87 114 106 80 120 82 76 96
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate; 105 days) 108 97 104 85 116 108 82 106 90 86 98.2
ci': CPT(lndex Return, Chg of Trad.Vol., Chg of Rf Rate; 84 days) 100 89 92 91 114 97 81 112 86 88 95
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 126 days) 100 108 108 98 122 118 72 104 112 78 102
CPT(Index Return, Chg of VIX; 105 days) 70 75 71 42 83 97 57 83 70 83 73.1
cD CPT(Chg of Trad.Vol., Chg of Rf Rate; 78 weeks) 14 2 21 15 24 26 18 20 24 21 18.5
CPT(Index Return, Chg of Rf Rate; 52 weeks) 10 13 21 18 22 23 15 18 12 11 16.3
CPT(Chg of Trad.Vol., Chg of Rf Rate; 130 weeks) 0 6 14 19 17 26 26 24 24 15 17.1
CPT(Chg ofTrad.Vol., Chg of Rf Rate; 105 days) 104 101 99 76 72 108 60 76 78 44 81.8
CPT(Chg of Rf Rate, Ch9 of VIX; 126 days) 101 95 98 70 80 78 42 74 90 58 78.6
C,' CPT(Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 13 13 21 20 23 22 26 12 17 22 18.9
C CPT(Index Return, Chg of Rf Rate, Chg of VIX; 105 days) 82 102 109 77 88 84 74 103 101 81 90.1
CPT(Chg of Trad.Vol., Chg of Rf Rate; 126 days) 102 95 95 70 87 115 70 70 96 46 84.6
CPT(Chg of Trad.Vol., Chg of VIX; 156 weeks) 0 8 24 20 20 24 28 28 26 0 17.8
CPT(Index Return, Chg of Trad.Vol., Chg of Rf Rate, Chg of VIX; 104 weeks) 14 14 17 19 22 25 24 9 22 19 18.5
CPT(Index Return, Chq of Trad.Vol., Chg of Rf Rate, Chq of VIX; 105 days) 102 98 92 88 108 102 76 97 115 82 96
CPT(Index Return, Chg of Trad.Vol., Chg of VIX; 78 weeks) 13 10 22 26 26 25 25 14 6 6 17.3
CPT(Index Return, Ch of Trad.Vol., Chg of VIX; 105 days) 94 95 95 64 92 104 81 113 100 84 92.2
CPT(Chg of Trad.Vol., Chg of Rf Rate; 156 weeks) 0 0 8 15 19 28 22 26 26 7 15.1
 Nearest Neighbors Algorithm: NN(k, m, 0, method)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN(14, 50, 0, regression) 0.3143 0.2196 0.1351 -0.0768 -0.1067 0.2971 0.1119 -0.0245 0.0013 0.1051 0.0886
NN(14, 10, 0,7, regression) 0.3819 0.2374 0.2353 -0.0862 -0.0011 0.1087 0.0384 -0.049 0.0565 -0.0031 0.0832
NN(14, 10, 0.9, regression) 0.2859 0.1643 0.2215 -0.1148 0.0209 0.2448 0.0577 -0.031 0.0484 -0.0276 0.0795
NN(14, 10, 0.6, regression) 0.3434 0. 1287 0.2157 -0.0445 0.0099 0.1123 0.0394 -0.0686 0.0831 0.0322 0.0791
NN(12, 10, 0.1, average) 0.1699 0.1896 0.181 0.0161 -0.1064 0.1893 -0.0015 0.0167 0.0474 0.1171 0.0774
O0 NN(14, 10, 1,regression) 0.1736 0.1705 0.2511 -0.0531 0.0014 0.1969 0.0637 -0.0612 0.0257 0.0496 0.0769
NN(8, 150, 0.4, regression) 0.2558 0.0225 0.0114 -0.027 -0.1477 0.2638 0.1253 0.0775 0.0994 0.1338 0.0748
NN(2, 150, 0.8, regression) 0.241 0.1953 -0.0188 0.1342 -0.2337 0.2638 0.0899 0.03 0.1362 -0.0081 0.073
NN(14, 100, 0.8, regression) 0.2363 0.1953 -0.0139 -0.0817 -0.1474 0.2638 0.1071 -0.0216 0.1024 0.1707 0.0726
NN(2, 150, 0.7, regression) 0.241 0.1953 -0.0462 0.1342 -0.2337 0.2638 0.0899 0.03 0.1631 -0.0081 0.0725
NN(14, 10, 0.8, regression) 0.3132 0.1868 0.2405 -0.1009 -0.023 0.1864 0.0123 -0.0555 0.0637 -0.028 0.0713
NN(6, 150, 0, regression) 0.159 0.3351 0.0186 -0.012 -0.0469 0.1097 -0.026 0.0618 0.0508 0.105 0.0706
NN(4, 150, 0.6, regression) 0.3605 0.1122 -0.0705 0.0682 -0.2017 0.2638 0.1193 0.0209 0.119 0.0177 0.0703
NN(2, 10, 0.2, regression) 0.2379 -0.0062 0.0713 -0.0822 -0.1332 0.2552 0.1703 0.0073 0.0642 0.1825 0.0692
NN(2, 10, 0.1,regression) 0.1129 -0.0099 0.0834 0.0654 -0.0655 0.1513 0.1731 0.0281 0.0493 0.1258 0.069
NN(14, 50, 0.1, regression) 0.2888 0.2147 0.0471 -0.1442 -0.0908 0.3062 0.0462 -0.0103 0.0134 0.1072 0.0683
NN(10, 300, 0.8, regression) 0.383 0.1953 -0.0825 0.1299 -0.3272 0.2638 0.0899 0.03 0.1362 0.0287 0.067
N
NN(10, 300, 0.7, regression) 0.383 0.1371 -0.0234 0.1299 -0.3281 0.2482 0.0729 0.03 0.1362 0.0446 0.0668
NN(4, 50, 0.1, average) 0.1713 0.1486 0.1642 -0.0668 -0.2081 0.1838 0.0862 0.0563 0.0903 0.1098 0.0664
NN(8, 450, 0.6, regression) 0.4589 0.1953 -0.1014 -0.1304 -0.2128 0.2638 0.1152 0.031 0.1362 0.0704 0.066
tn Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN(14, 50, 0, regression) 0.1269 0.1132 0.1467 0.1689 0.1958 0.1331 0.0734 0.071 0.0663 0.1108 0.1273
NN(14, 10, 0.7, regression) 0.1313 0.1201 0.1584 0.1519 0.1739 0.1206 0.0823 0.0811 0.0758 0.1175 0.1255
NN(14, 10, 0.9, regression) 0.1237 0.1189 0.1588 0.1564 0.1817 0.1287 0.0826 0.0758 0.078 0.1217 0.1273
NN(14, 10, 0.6, regression) 0.1324 0.1309 0.1588 0.1506 0.1736 0.1186 0.0833 0.0798 0.0732 0.1205 0.1265
NN(12, 10, 0.1, average) 0.1321 0.1155 0.1769 0.1947 0.2258 0.1395 0.0687 0.0823 0.0689 0.1212 0.1419
NN(14, 10, 1, regression) 0.1087 0.1098 0.161 0.1446 0.18 0.1242 0.0864 0.0733 0.0764 0.1174 0.1229
NN(8, 150, 0.4, regression) 0.0989 0.1492 0.1386 0.137 0.2126 0.1711 0.0784 0.0671 0.0625 0.1088 0.1307
NN(2, 150, 0.8, regression) 0.1373 0.1808 0.1462 0 0895 0.2602 0.1711 0.1109 0.1027 0.1004 0.044 0.1459
(D
03~
(0 NN(14, 100, 0.8, regression) 0.1374 0.1808 0.1384 0.1351 0.2054 0.1711 0.095 0.0355 0.0681 0.1344 0.1391
NN(2, 150, 0.7, regression) 0.1373 0.1808 0.1434 0.0895 0.2602 0.1711 0.1109 0.1027 0.0775 0.044 0.1442
NN(14, 10, 0.8, regression) 0.1214 0.1173 0.1539 0.1601 0.1769 0.1374 0.0813 0.0818 0.0756 0.1211 0.1271
NN(6, 150, 0, regression) 0.1258 0.1201 0.148 0.1604 0.2056 0.1292 0.0685 0.0728 0.0696 0.1064 0.1277
NN(4, 150, 0.6, regression) 0.1357 0.0994 0.1155 0.1718 0.2126 0.1711 0.0705 0.1024 0.0614 0.0971 0.132
NN(2, 10, 0.2, regression) 0.1327 0.1019 0.149 0. 1495 0.2023 0.1308 0.0725 0.0638 0.0671 0.1123 0.1253
NN(2, 10, 0.1, regression) 0.1403 0.1035 0.1523 0.155 0.197 0.1335 0.074 0.0644 0.0659 0.1166 0.1272
NN(14, 50, 0.1, regression) 0.1203 0.1139 0.1402 0.1664 0.199 0.1356 0.0725 0.0716 0.0693 0.1054 0.1261
NN(10, 300, 0.8, regression) 0.1785 0.1808 0.0896 0.1048 0.2368 0.1711 0.1109 0.1027 0.1004 0.092 0.145
NN(10, 300, 0.7, regression) 0.1785 0.1777 0.0582 0.1048 0.2003 0.1177 0.11 0.1027 0.1004 0.1469 0.1364
NN(4, 50, 0.1, average) 0.1335 0.0892 0.1565 0.2085 0.2539 0.1557 0.0643 0.0768 0.0711 0.1069 0.1446
NN(8, 450, 0.6, regression) 0.1718 0.1808 0.2218 0.2153 0.2381 0.1711 0.0786 0.0894 0.1004 0.0875 0.166
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Nearest Neighbors Algorithm: NN(k, m, 8, method)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN(14, 50, 0, regression) 2.477 1.9393 0.9212 -0.4545 -0.5451 2.2317 1.5236 -0.3445 0.0195 0.949 0.5334
NN(14, 10, 0.7, regression) 2.9079 1.9774 1.4855 -0.5677 -0.0065 0.9017 0.4666 -0.604 0.7447 -0.0262 0.501
NN(14, 10, 0.9, regression) 2.3114 1.3813 1.3948 -0.7342 0.1149 1.9029 0.6987 -0.4092 0.6209 -0.2265 0.479
NN(14, 10, 0.6, regression) 2.5934 0.983 1.3585 -0.2954 0.0571 0.9471 0.4732 -0.859 1.1357 0.267 0.4766
NN(12, 10, 0.1, average) 1.2859 1.641 1.0231 0.0825 -0.4712 1.3575 -0.0213 0.2029 0.688 0.9657 0.4664
NN(14, 10, 1, regression) 1.597 1.5535 1.5595 -0.3673 0.0077 1.5855 0.7367 -0.8348 0.3366 0.4226 0.463
NN(8, 150, 0.4, regression) 2.5864 0.1507 0.0824 -0.1972 -0.6947 1.5422 1.5978 1.1544 1.5897 1.2304 0.4506
NN(2, 150, 0.8, regression) 1.7551 1.0802 -0.1286 1.4997 -0.898 1.5422 0.8112 0.2923 1.3565 -0.184 0.4396
NN(14, 100, 0.8, regression) 1.7201 1.0802 -0.1002 -0.6049 -0.7174 1.5422 1.1274 -0.6065 1.5029 1.2703 0.4374
NN(2, 150, 0.7, regression) 1.7551 1.0802 -0.3219 1.4997 -0.898 1.5422 0.8112 0.2923 2.1044 -0.184 0.4365
NN(14, 10, 0.8, regression) 2.5804 1.5926 1.5631 -0.6301 -0.13 1.3563 0.151 -0.6783 0.843 -0.2309 0.4297
NN(6, 150, 0, regression) 1.2635 2.7907 0.1256 -0.0745 -0.2282 0.8488 -0.379 0.8495 0.7291 0.9869 0.4251
NN(4, 150, 0.6, regression) 2.6575 1.1283 -0.6102 0.3972 -0.9487 1.5422 1.6937 0.2043 1.9388 0.1822 0.4235
NN(2, 10, 0.2, regression) 1.7928 -0.0607 0.4785 -0.5498 -0.6583 1.9508 2.3477 0.1137 0.9562 1.6251 0.4167
NN(2, 10, 0.1, regression) 0.8046 -0.0958 0.5478 0.4218 -0.3325 1.133 2.3404 0.4363 0.7483 1.0787 0.4158
NN(14, 50, 0.1, regression) 2.4009 1.8849 0.3359 -0.867 -0.4563 2.2577 0.637 -0.1441 0.1939 1.0172 0.4112
o
SD NN(10, 300, 0.8, regression) 2.1456 1.0802 -0.9211 1.2399 -1.3816 1.5422 0.8112 0.2923 1.3565 0.3116 0.4033
NN(10, 300, 0.7, regression) 2.1456 0.7715 -0.403 1.2399 -1.6382 2.1088 0.6627 0.2923 1.3565 0.3038 0.4023
NN(4, 50, 0.1, average) 1.2825 1.6666 1.0494 -0.3204 -0.8197 1.1809 1.3407 0.7323 1.2698 1.0274 0.4
NN(8, 450, 0.6, regression) 2.6711 1.0802 -0.457 -0.6059 -0.8935 1.5422 1.4661 0.3465 1.3565 0.8041 0.3978
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN(14, 50, 0, regression) 0.48 0.45 0.51 0.55 0.56 0.56 0.47 0.51 0.52 0.48 0.51
NN(14, 10, 0.7, regression) 0.4 0.5 0.48 0.49 0.43 0.52 0.54 0.59 0.52 0.56 0.5
NN(14, 10, 0.9, regression) 0.44 0.45 0.49 0.51 0.47 0.57 0.57 0.54 0.54 0.51 0.51
C:o NN(14, 10, 0.6, regression) 0.42 0.52 0.45 0.49 0.44 0.49 0.55 0.58 0.47 0.6 0.5
CI)
o !
Ci2(D
c+3
O (D
c+
W
N
A
NN(12, 10, 0.1, average)
NN(14, 10, 1, regression)
0.36
0.37
0.42
0.4
0.59
0.56
0.71
0.48
0.68
0.46
0.56
0.53
0.46
0.65
0.55
0.54
0.44
0.51
0.51
0.54
0.53
0.5
NN(8, 150, 0.4, regression) 0.26 0.77 0.37 0.55 0.78 1 0.48 0.55 0.49 0.42 0.57
NN(2, 150, 0.8, regression) 0.33 1 0.29 0.27 1 1 1 1 1 0.15 0.7
NN(14, 100, 0.8, regression) 0.34 1 0.33 0.29 0.48 1 0.73 0.06 0.53 0.88 0.56
NN(2, 150, 0.7, regression) 0.33 1 0.29 0.27 1 1 1 1 0.74 0.15 0.68
NN(14, 10, 0.8, regression) 0.44 0.44 0.46 0.54 0.46 0.57 0.53 0.62 0.51 0.54 0.51
NN(6, 150, 0, regression) 0.42 0.42 0.52 0.62 0.61 0.5 0.43 0.52 0.5 0.5 0.5
Cl- NN(4, 150, 0.6, regression) 0.59 0.24 0.26 0.67 0.74 1 0.47 0.99 0.55 0.56 0.61
NN(2, 10, 0.2, regression) 0.48 0.4 0.46 0.55 0.5 0.56 0.44 0.44 0.54 0.47 0.48
NN(2, 10, 0.1, regression) 0.5 0.44 0.48 0.56 0.5 0.55 0.45 0.46 0.51 0.47 0.49
NN(14, 50, 0.1, regression) 0.44 0.41 0.49 0.54 0.59 0.58 0.46 0.5 0.55 0.46 0.5
NN(10, 300, 0.8, regression) 0.92 1 0.15 0.29 0.95 1 1 1 1 0.56 0.79
NN(10, 300, 0.7, regression) 0.92 0.91 0.06 0.29 0.7 0.72 0.99 1 1 0.94 0.75
NN(4, 50, 0.1, average) 0.2 0.22 0.56 0.86 0.92 0.71 0.33 0.47 0.5 0.43 0.52
C-+ 0.88 0.56
NN(8, 450, 0.6, regression) 0.89 1 1 0.98 0.95 1 0.57 1 0.88
S7
 Nearest Neighbors Algorithm: NN(k, m, 6, method)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN(14, 50, 0, regression) 129 134 146 130 135 133 127 109 114 124 128.1
(0 73 60.6
NN(14, 10, 0.7, regression) 55 53 63 56 66 55 70 58 57
NN(14, 10, 0.9, regression) 39 42 48 48 58 38 55 54 49 61 49.2
NN(14, 10, 0.6, regression) 63 61 77 62 72 57 74 66 69 77 67.8
NN(12, 10, 0.1, average) 73 81 70 65 62 75 94 99 104 87 81
NN(14, 10, 1, regression) 33 34 44 46 54 34 43 48 43 59 43.8
C(D 22 10.7
NN(8, 150, 0.4, regression) 15 4 11 15 18 0 7 7 8
Co-
NN(2, 150, 0.8, regression) 1 0 1 1 0 0 0 0 0 1 0.4
NN(14, 100, 0.8, regression) 1 0 3 2 5 0 2 3 3 4 2.3
0m NN(2, 150, 0.7, regression) 1 0 1 1 0 0 0 0 2 1 0.6
0--
CD
ix3 NN(14, 10, 0.8, regression) 49 44 58 54 62 42 63 58 53 69 55.2
NN(6, 150, 0, regression) 122 128 113 119 121 128 131 124 116 132 123.4
NN(4, 150, 0.6, regression) 3 3 6 3 6 0 2 2 2 9 3.6
O
NN(2, 10, 0.2, regression) 99 88 92 83 84 73 96 84 75 108 88.2
NN(2, 10, 0.1, regression) 122 111 114 101 108 103 110 94 99 122 108.4
rL
NN(14, 50, 0.1, regression) 99 98 104 91 100 103 102 92 86 104 97.9
NN(10, 300, 0.8, regression) 2 0 1 1 2 0 0 0 0 1 0.7
(19 2 1.4
NN(10, 300, 0.7, regression) 2 12 1 3 1 2 0 0
NN(4, 50, 0.1, average) 22 39 38 16 20 22 53 69 70 66 41.5
NN(8, 450, 0.6, regression) 2 0 0 0 2 0 2 4 0 1 1.1
 Nearest Neighbors Al orithm with Trading Volume ( m: = 1:1) : NN w/Trad. Vol.(m, I, k, 8, method)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Trad. Vol.(3. 3, 400, 1, regression) 0.1888 0.2357 0.0493 -0.1213 0.325 0.2207 0.0374 0.0914 0.0514 0.086 0.1097
NN w/Trad. Vol.(3, 3, 400, 0.9, regression) 0.2476 0.2285 0.061 -0.1245 0.3062 0.1921 0.0211 0.1011 0.0508 0.0454 0.106
NN w/Trad. Vol.(3, 3, 500, 1, regression) 0.3295 0.1966 0.0044 0.0186 0.098 0.1857 -0.0133 0.0778 0.0996 0.0546 0.1008
NN w/Trad. Vol.(2, 2, 450, 0.6, regression) 0.205 0.1405 0.0446 -0.0212 0.1067 0.2715 0.103 0.048 0.1359 0.0003 0.1001
NN w/Trad. Vol.(3, 3, 400, 0.8, regression) 0.2701 0.1714 0.0622 -0.0776 0.2615 0.1268 0.0249 0.0966 0.0424 0.0618 0.0993
NN w/Trad. Vol.(3, 3, 500, 0.7, regression) 0.2715 0.2435 0.0506 0.0129 0.0067 0.2796 -0.0017 0.0698 0.0744 0.0292 0.0985
NN w/Trad. Vol.(3, 3, 400, 0.7, regression) 0.3005 0.1109 0.0751 -0.0428 0.1396 0.2617 0.0193 0.0964 0.0154 0.0545 0.0985
NN w/Trad. Vol.(3, 3, 450, 0.8, regression) 0.2137 0.1647 0.1073 -0.0271 0.2319 0.1889 -0.0403 0.0528 0.0472 0.0636 0.0964
NN w/fTrad. Vol.(3, 3, 150, 0.7, regression) 0.2286 0.0506 0.1636 0.0434 0.1672 0.1662 0.0468 0.0619 0.0321 0.0245 0.0963
NN w/Trad. Vol.(3, 3, 400, 0.6, regression) 0.2856 0.1126 0.1632 -0.0601 0.0611 0.2794 0.0113 0.0943 0.029 0.029 0.0954
NN w/Trad. Vol.(3, 3, 150, 0.8, regression) 0.2397 0.048 0.2127 0.0238 0.0674 0.2421 0.0499 0.0695 0.0416 -0.0143 0.0944
NN w/Trad. Vol.(3, 3, 450, 0.7, regression) 0.1817 0.1351 0.1249 0.0171 0.1064 0.2556 -0.0479 0.0604 0.0414 0.099 0.0944
NN w/Trad. Vol.(3, 3, 150, 0.6, regression) 0.2617 0.0284 0.1539 0.058 0.1409 0.1293 0.0476 0.0626 0.0287 0.0382 0.0927
NN w/Trad. Vol.(3, 3, 150, 0.9, regression) 0.2116 -0.0066 0.2343 0.0134 0.1383 0.2217 0.0529 0.0624 0.0555 -0.0254 0.0919
NN w/Trad. Vol.(3, 3, 500, 0.6, regression) 0.1828 0.2201 0.0708 0.0032 0.0112 0.2868 0.0024 0.0733 0.0794 0.015 0.0905
NN w/Trad. Vol.(3, 3, 500, 0.9, regression) 0.2509 0.2199 0.0429 -0.0355 0.0531 0.1805 -0.0012 0.0716 0.1008 0.0566 0.0904
NN w/Trad. Vol.(3, 3, 450, 1, regression) 0.1898 0.1781 0.0252 -0.0374 0.2627 0.1501 -0.0348 0.0579 0.0778 0.071 0.09
NN w/Trad. Vol.(3, 3, 400, 0.5, regression) 0.2746 0.1126 0.1777 -0.1012 0.1089 0.1967 -0.0115 0.1183 0.0479 0.0183 0.0892
NN w/Trad. Vol.(2, 2, 450, 0.5, regression) 0.1952 0.1963 0.0666 -0.0897 0.0488 0.2329 0.0891 0.0387 0.1295 0.0057 0.0872
NN w/Trad. Vol.(3, 3, 150, 0.5, regression) 0.2601 0.0413 0.1538 0.0359 0.1492 0.0583 0.0601 0.0604 0.0232 0.0382 0.0858
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
N NN w/Trad. Vol.(3, 3, 400, 1, regression) 0.1239 0.1323 0.1639 0.1615 0.1907 0.137 0.0826 0.0716 0.0709 0.1071 0.1302
r>
CD NN w/Trad. Vol.(3, 3, 400, 0.9, regression) 0.1397 0.1324 0.1638 0.1739 0.1954 0.1322 0.08 0.0691 0.0699 0.107 0.1332
NN w/Trad. Vol.(3, 3, 500, 1, regression) 0.1213 0.1301 0.1709 0.1355 0.2079 0.1174 0.0819 0.0705 0.0709 0.0997 0.1276
NN w/Trad. Vol.(2, 2, 450, 0.6, regression) 0.11 0.1296 0.1633 0.1759 0.2006 0.1268 0.0803 0.0741 0.069 0.1065 0.1307
NN w/Trrad. Vol.(3, 3, 400, 0.8, regression) 0.1415 0.1348 0.1662 0.1657 0.1967 0.1287 0.0803 0.07 0.0684 0.1082 0.1328
NN w/Trad. Vol.(3, 3, 500, 0.7, regression) 0.1402 0.1233 0.166 0.1509 0.1941 0.1143 0.0837 0.0702 0.0734 0.0991 0.1277
NN w/Trad. Vol.(3, 3, 400, 0.7, regression) 0.1407 0.1301 0.1662 0.1679 0.1868 0.1207 0.0797 0.0695 0.0715 0.1064 0.1302
(D
c-..
NN w/Trad. Vol.(3, 3, 450, 0.8, regression) 0.12 0.1298 0.1588 0.1335 0.2077 0.1182 0.084 0.0689 0.0714 0.1124 0.1269
NN w/Trad. Vol.(3, 3, 150, 0.7, regression) 0.1117 0.1142 0.1552 0.1651 0.1764 0.1305 0.0743 0.0724 0.0726 0.1079 0.1236
0 NN w/Trad. Vol.(3, 3, 400, 0.6, regression) 0.1397 0.1242 0.1674 0.1672 0.1786 0.1191 0.0806 0.0691 0.0722 0.108 0.1285
NN w/Trad. Vol.(3, 3, 150, 0.8, regression) 0.112 0.1138 0.1541 0.1661 0.1837 0.1205 0.0714 0.072 0.073 0.1113 0.1237
NN w/Trad. Vol.(3, 3, 450, 0.7, regression) 0. 1306 0.1272 0.1629 0.1369 0.2059 0.1175 0.0843 0.0693 0.0717 0.1131 0.1283
NN w/Trad. Vol.(3, 3, 150, 0.6, regression) 0.1143 0.115 0.1568 0.1647 0.1698 0.1353 0.0744 0.0724 0.0727 0.1063 0.1235
NN w/Trad. Vol.(3, 3, 150, 0.9, regression) 0.1085 0.1143 0.1524 0.1673 0.1931 0.12 0.071 0.0725 0.0739 0.111 0.1248
NN w/Trad. Vol.(3, 3, 500, 0.6, regression) 0.1408 0.1267 0.1668 0.1524 0.1847 0.1161 0.0841 0.0706 0.0735 0.105 0.1277
NN w/Trad. Vol.(3, 3, 500, 0.9, regression) 0.1195 0.1311 0.1719 0.1342 0.202 0.1182 0.0827 0.0702 0.0712 0.1015 0.1269
NN w/Trad. Vol.(3, 3, 450, 1, regression) 0.1234 0.1369 0.1595 0.1336 0.2011 0.1216 0.084 0.0677 0.0693 0.1064 0.1266
NN w/Trad. Vol.(3, 3, 400, 0.5, regression) 0.1396 0.1248 0.1674 0.1572 0.1762 0.1216 0.0788 0.0674 0.0693 0.1074 0.1268
NN w/Trad. Vol.(2, 2, 450, 0.5, regression) 0.11 0.1307 0.1645 0.1682 0.1959 0.1261 0.0804 0.0745 0.0693 0.1064 0.1292
NN w/Trad. Vol.(3, 3, 150, 0.5, regression) 0.1138 0.1152 0.1564 0.1644 0.1718 0.1389 0.0768 0.0716 0.0728 0.1063 0.1241
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Nearest Neighbors Algorithm with Trading Volume (m:l = 1:1) : NN w/Trad. Vol.(m, I, k, 8, method)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Trad. Vol.(3, 3, 400, 1, regression) 1.5235 1.7824 0.3005 -0.7511 1.7038 1.6109 0.4534 1.2763 0.7246 0.8027 0.8837
NN w/Trad. Vol.(3, 3, 400, 0.9, regression) 1.7718 1.726 0.3723 -0.7161 1.5668 1.4531 0.2635 1.4625 0.7275 0.4237 0.8535
NN w/Trad. Vol.(3, 3, 500, 1, regression) 2.7169 1.5107 0.0259 0.1376 0.4713 1.5821 -0.1626 1.1032 1.405 0.5477 0.8121
NN w/Trad. Vol.(2, 2, 450, 0.6, regression) 1.8638 1.0844 0.2734 -0.1203 0.5319 2.1414 1.2823 0.6477 1.9692 0.0027 0.8067
NN w/Trad. Vol.(3, 3, 400, 0.8, regression) 1.9083 1.2713 0.3741 -0.4684 1.3295 0.9852 0.3106 1.3806 0.6194 0.571 0.7999
NN w/Trad. Vol.(3, 3, 500, 0.7, regression) 1.9362 1.9746 0.3049 0.0854 0.0344 2.4464 -0.0198 0.9944 1.0144 0.2946 0.7937
NN w/Trad. Vol.(3, 3, 400, 0.7, regression) 2.1356 0.8521 0.4521 -0.2548 0.7474 2.1683 0.2427 1.3878 0.2152 0.512 0.7933
NN w/Trad. Vol.(3, 3, 450, 0.8, regression) 1.7808 1.2688 0.6755 -0.2027 1.1165 1.5983 -0.4794 0.7665 0.6609 0.5656 0.7765
NN w/Trad. Vol.(3, 3, 150, 0.7, regression) 2.0471 0.4433 1.0539 0.2628 0.9482 1.2737 0.6298 0.8548 0.4419 0.2272 0.7755
NN w/Trad. Vol.(3, 3, 400, 0.6, regression) 2.0442 0.9064 0.9746 -0.3597 0.3423 2.3458 0.1401 1.3639 0.402 0.2685 0.7685
U1 0.7607
NN w/Trad. Voi.(3, 3, 150, 0.8, regression) 2.1393 0.4223 1.3799 0.1432 0.3671 2.0085 0.699 0.9653 0.57 -0.1282
NN w/Trad. Vol.(3, 3, 450, 0.7, regression) 1.3911 1.0628 0.7671 0.1249 0.5167 2.1762 -0.5677 0.8705 0.5772 0.8753 0.76
NN w/Trad. Vol.(3, 3, 150, 0.6, regression) 2.2901 0.2467 0.981 0.3519 0.8296 0.9558 0.64 0.8645 0.395 0.3596 0.7466
NN w/Trad. Vol.(3, 3, 150, 0.9, regression) 1.9493 -0.0579 1.5379 0.0799 0.7161 1.8473 0.7447 0.8613 0.7512 -0.2284 0.7403
0 NN w/Trad. Vol.(3, 3, 500, 0.6, regression) 1.2982 1.738 0.4243 0.0211 0.0604 2.4699 0.0281 1.0386 1.0804 0.1426 0.7287
NN w/Trad. Vol.(3, 3, 500, 0.9, regression) 2.1002 1.6775 0.2499 -0.2645 0.263 1.5276 -0.0147 1.0195 1.4153 0.5582 0.7281
NN w/Trad. Vol.(3, 3, 450, 1, regression) 1.538 1.3015 0.1578 -0.2801 1.3063 1.234 -0.4138 0.8546 1.1234 0.6674 0.7251
0
NN w/Trad. Vol.(3, 3, 400, 0.5, regression) 1.9668 0.9023 1.0617 -0.6438 0.6181 1.6183 -0.1457 1.756 0.6913 0.1709 0.7184
L·Q NN w/Trad. Vol.(2, 2, 450, 0.5, regression) 1.7744 1.5017 0.4046 -0.5331 0.2493 1.8467 1.1074 0.52 1.8677 0.0534 0.7022
NN w/Trad. Vol.(3, 3, 150, 0.5, regression) 2.2859 0.3582 0.9834 0.2181 0.8684 0.42 0.7824 0.8431 0.3184 0.3596 0.691
Buy and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Trad. Vol.(3, 3, 400, 1, regression) 0.45 0.51 0.55 0.54 0.54 0.59 0.5 0.48 0.55 0.51 0.52
Cl , NN w/Trad. Vol,(3, 3, 400, 0.9, regression) 0.46 0.51 0.55 0.56 0.55 0.54 0.48 0.46 0.54 0.48 0.51
NN w/Trad. Vol.(3, 3, 500, 1, regression) 0.51 0.46 0.54 0.46 0.61 0.38 0.5 0.47 0.51 0.43 0.49
NN w/Trad. Vol.(2, 2, 450, 0.6, regression) 0.39 0.46 0.58 0.59 0.62 0.45 0.52 0.52 0.48 0.43 0.5
NN w/Trad. Vol.(3, 3, 400, 0.8, regression) 0.48 0.51 0.56 0.54 0.57 0.5 0.49 0.47 0.54 0.48 0.51
NN w/Trad. Vol.(3, 3, 500, 0.7, regression) 0.46 0.44 0.54 0.52 0.58 0.4 0.53 0.49 0.52 0.44 0.49
CD
NN w/Trad. Vo1.(3, 3, 400, 0.7, regression) 0.5 0.52 0.57 0.54 0.55 0.46 0.48 0.48 0.55 0.47 0.51
NN w/Trad. Vol.(3, 3, 450, 0.8, regression) 0.47 0.48 0.52 0.45 0.6 0.4 0.53 0.47 0.51 0.51 0.49
NN w/Trad. Vol.(3, 3, 150, 0.7, regression) 0.5 0.44 0.52 0.57 0.5 0.5 0.47 0.53 0.5 0.49 0.5
NN w/Trad. Vol.(3, 3, 400, 0.6, regression) 0.49 0.48 0.58 0.53 0.54 0.43 0.48 0.47 0.54 0.49 0.5
NN w/Trad. Vol.(3, 3, 150, 0.8, regression) 0.5 0.43 0.5 0.57 0.52 0.49 0.45 0.52 0.51 0.51 0.5
CD-
NN w/Trad. Vol.(3, 3, 450, 0.7, regression) 0.47 0.48 0.55 0.47 0.61 0.4 0.53 0.48 0.5 0.51 0.5
NN w/Trad. Vol.(3, 3, 150, 0.6, regression) 0.52 0.45 0.54 0.57 0.49 0.5 0.47 0.52 0.5 0.48 0.51
NN w/Trad. Vol.(3, 3, 150, 0.9, regression) 0.46 0.44 0.49 0.59 0.56 0.48 0.45 0.51 0.52 0.5 0.5
NN w/Trad. Vol.(3, 3, 500, 0.6, regression) 0.48 0.46 0.57 0.53 0.57 0.43 0.52 0.48 0.52 0.44 0.5
NN w/Trad. Vol.(3, 3, 500, 0.9, regression) 0.45 0.46 0.55 0.46 0.62 0.4 0.53 0.49 0.51 0.46 0.49
NN w/Trad. Vol.(3, 3, 450, 1, regression) 0.48 0.54 0.52 0.45 0.59 0.42 0.53 0.45 0.49 0.48 0.5
NN w/Trad. Vol.(3, 3, 400, 0.5, regression) 0.5 0.48 0.58 0.55 0.53 0.45 0.47 0.44 0.51 0.49 0.5
NN w/Trad. Vol.(2, 2, 450, 0.5, regression) 0.4 0.47 0.57 0.57 0.59 0.46 0.51 0.54 0.5 0.43 0.5
NN w/Trad. Vol.(3, 3, 150, 0.5, regression) 0.51 0.46 0.53 0.57 0.5 0.54 0.49 0.51 0.5 0.48 0.51
 Nearest Neighbors Algorithm with Trading Volume (m:l = 1:1) : NN w/Trad. Vol.(m, I, k, 8, method)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Trad. Vol.(3, 3, 400, 1, regression) 87 78 84 72 80 55 78 82 87 91 79.4
NN w/Trad. Vol.(3, 3, 400, 0.9, regression) 95 80 84 74 84 57 84 88 87 101 83.4
NN w/Trad. Vol.(3, 3, 500, 1, regression) 93 70 72 65 73 51 76 78 85 107 77
NN w/Trad. Vol.(2, 2, 450, 0.6, regression) 96 92 81 82 80 74 91 92 92 92 87.2
NN w/Trad. Vol.(3, 3, 400, 0.8, regression) 101 84 88 74 86 63 90 90 93 107 87.6
NN w/Trad. Vol.(3, 3, 500, 0.7, regression) 115 82 88 81 81 63 94 94 93 117 90.8
NN w/Trad. Vol.(3, 3, 400, 0.7, regression) 113 90 90 76 92 71 94 96 93 115 93
NN w/Trad. Vol.(3, 3, 450, 0.8, regression) 100 84 86 73 81 65 88 86 94 110 86.7
t'Q3 NN w/Trad. Vol.(3, 3, 150, 0.7, regression) 97 109 95 98 100 69 108 97 116 117 100.6
NN w/Trad. Vol.(3, 3, 400, 0.6, regression) 117 102 98 84 100 77 96 100 97 119 99
NN w/Trad. Vol.(3, 3, 150, 0.8, regression) 97 109 87 90 94 65 100 93 114 113 96.2
NN w/Trad. Vol.(3, 3, 450, 0.7, regression) 110 88 92 77 91 75 90 94 96 110 92.3
NN w/Trad. VoI.(3, 3, 150, 0.6, regression) 111 113 101 100 106 77 112 99 118 121 105.8
NN w/Trad. Vol.(3, 3, 150, 0.9, regression) 87 99 81 80 82 65 98 93 104 111 90
NN w/Trad. Vol.(3, 3, 500, 0.6, regression) 121 92 98 83 99 69 94 104 93 123 97.6
NN w/Trad. Vol.(3, 3, 500, 0.9, regression) 99 72 76 71 75 59 86 86 89 109 82.2
NN w/Trad. Vol.(3, 3, 450, 1, regression) 90 72 78 73 71 55 80 82 88 91 78
NN w/Trad. Vol.(3, 3, 400, 0.5, regression) 125 102 102 90 104 83 98 104 101 121 103
NN w/Trad. Vol.(2, 2, 450, 0.5, regression) 96 98 87 86 86 78 99 104 98 98 93
NN w/Trad. Vol.(3, 3, 150, 0.5, regression) 111 119 105 106 112 77 114 109 122 121 109.6
 WJ

t•3-
(n
Nearest Neighbors Algorithm with Trading Volume (m:l = 2:1) : NN w/Trad. Vol.(m, I, k, e,method)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Trad. Vol.(16, 8, 150, 0.1, regression) -0.0106 0.1478 0.1501 0.0356 0.2759 0.1864 0.045 -0.02 0.0763 0.1356 0.0987
NN w/Trad. Vol.(16, 8, 150, 0, regression) -0.027 0.1512 0.1589 0.0367 0.2457 0.22 0.0185 -0.0136 0.0787 0.127 0.0959
NN w/Trad. Vol.(16, 8, 150, 0.2, regression) -0.0372 0.1377 0.1397 0.0371 0.2121 0.1913 0.0319 -0.0248 0.0524 0.1404 0.0849
NN w/Trad. Vol.(16, 8, 150, 0.3, regression) -0.0029 0.1232 0.185 0.0105 0.1888 0.1694 0.0326 -0.0352 0.048 0.1296 0.082
NN w/Trad. Vol.(12, 6, 200, 0.4, regression) 0.1872 0.1889 0.0671 0.015 -0.0253 0.0305 0.0173 0.1442 0.0954 0.1021 0.0799
NN w/Trad. Vol.(16, 8, 250, 0.8, regression) 0.0371 0.0886 0.1611 -0.1209 0.1021 0.393 0.1212 -0.0857 0.0696 0.1066 0.0794
NN w/Trad. Vol.(8, 4, 300, 0.4, regression) 0.1841 0.1453 -0.0402 0.2441 -0.0408 0.253 0.0586 -0.045 -0.012 0.0962 0.0786
NN w/Trad. Vol.(16, 8, 300, 0, regression) 0.1312 0.0364 0.1071 -0.0676 0.0722 0.2808 0.0993 -0.0912 0.149 0.0814 0.0751
NN w/Trad. Vol.(16, 8, 250, 1, regression) 0.0435 0.067 0.1864 -0.0545 0.0253 0.2883 0.1228 -0.0941 0.0818 0.1135 0.0729
NN w/Trad. Vol.(14, 7, 500, 0.9, regression) 0.2471 0.1299 0.0083 -0.0318 0.1116 0.1425 0.1127 -0.0703 0.0741 0.0373 0.0725
NN w/Trad. Vol.(16, 8, 250, 0.9, regression) 0.0418 0.0278 0.1655 -0.0338 0.0066 0.3463 0.1335 -0.0941 0.0777 0.1135 0.0725
NN w/Trad. Vol.(4, 2, 50, 0.1, average) 0.0855 0.0296 0.433 -0.0146 -0.2053 0.3205 0.107 -0.0012 0.1188 -0.02 0.0722
NN w/Trad. Vol.(8, 4, 300, 0.5, regression) 0.1956 0.1302 -0.0601 0.1727 -0.0021 0.214 0.0673 -0.0564 -0.0126 0.117 0.072
NN w/Trad. Vol.(16, 8, 300, 1, regression) 0.1354 0.0489 0.0907 -0.062 0.1149 0.2366 0.0775 -0.0912 0.1324 0.0718 0.0716
jJ~ (D NN w/Trad. Vol.(16, 8, 450, 0.9, regression) 0.1365 0.0405 0.3524 -0.0387 -0.0931 0.2794 0.0636 -0.0605 0.0809 0.0298 0.0709
NN w/Trad. Vol.(12, 6, 200, 0.5, regression) 0.1107 0.1868 0.0638 0.0176 -0.047 0.038 0.02 0.1387 0.0954 0.1014 0.0706
NN w/Trad. Vol.(8, 4, 300, 0.2, regression) 0.2006 0.1395 0.0275 0.1982 -0.1225 0.2105 0.0237 -0.0387 -0.0058 0.1097 0.0687
NN w/Trad. Vol.(12, 6, 200, 0.7, regression) 0.1608 0.2121 0.0296 0.0449 -0.0302 -0.0102 0.0113 0.116 0.1044 0.0693 0.0683
NN w/Trad. Vol.(16, 8, 250, 0.7, regression) 0.0436 0.1135 0.1446 -0.1625 0.0953 0.3412 0.1173 -0.0862 0.0715 0.079 0.0681
0 0 NN w/Trad. Vol.(16, 8, 450, 0.1, regression) 0.1088 0.0945 0.2774 -0.08 -0.0846 0.3199 -0.021 -0.0481 0.1028 0.0831 0.0673
0.0899 0.03 0.1362 0.0353 0.0423
o0o(D
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Trad. Vol.(16, 8, 150, 0.1, regression) 0.1628 0.1332 0.1478 0.166 0.1925 0.1318 0.0774 0.0786 0.0731 0.1094 0.1332
NN wf/rad. Vol.(16, 8, 150, 0, regression) 0.1623 0.133 0.1483 0.1689 0.1911 0.1324 0.0791 0.0783 0.0731 0.1091 0.1335
NN w/Trad. Vol.(16, 8, 150, 0.2, regression) 0.1623 0.1338 0.1475 0.1672 0.1909 0.1326 0.0781 0.0787 0.072 0.1095 0.1332
NN w/Trad. Vo1.(16, 8, 150, 0.3, regression) 0.1646 0.1344 0.1574 0.1685 0.1908 0.1321 0.0779 0.0794 0.0719 0.1113 0.1349
NN w/Trad. Vo1.(12, 6, 200, 0.4, regression) 0.1339 0.135 0.1556 0.1497 0.2106 0.1104 0.0768 0.075 0.0741 0.1059 0.1294
NN w/Trad. Vo1.(16, 8, 250, 0.8, regression) 0.1576 0.1398 0.1593 0.1671 0.1954 0.1296 0.0847 0.0744 0.0703 0.098 0.1341
NN w/Trad. Vol.(8, 4, 300, 0.4, regression) 0.1307 0.128 0.1374 0.1641 0.1955 0.1117 0.0815 0.0697 0.0684 0.1039 0.1253
NN w/Trad. Vol.(16, 8, 300, 0, regression) 0.1585 0.13 0.1469 0.1706 0.2021 0.1342 0.0819 0.0739 0.0738 0.1096 0.1346
NN w/Trad. Vol.(16, 8, 250, 1, regression) 0.1577 0.1393 0.1592 0.1653 0.1962 0.1384 0.0831 0.0747 0.0703 0.099 0.1348
0n
(D NN w/Trad. Vol.(14, 7, 500, 0.9, regression) 0.1423 0.1363 0.1697 0.1245 0.1788 0.13 0.0756 0.0701 0.0701 0.1077 0.1261
vl...
NN w/Trad. Vol.(16, 8, 250, 0.9, regression) 0.1576 0.138 0.1602 0.1658 0.1966 0.1342 0.0834 0.0747 0.0704 0.099 0.1345
°.I NN w/Trad. Vol.(4, 2, 50, 0.1, average) 0.0599 0.0787 0.158 0.205 0.2566 0.1484 0.0652 0.0712 0.0626 0.0986 0.137
NN w/Trad. Vol.(8, 4, 300, 0.5, regression) 0.1307 0.1273 0.1363 0.1666 0.1984 0.1102 0.0796 0.0691 0.0688 0.1045 0.1257
NN wfTrad. Vol.(16, 8, 300, 1, regression) 0.1586 0.1308 0.1471 0.1704 0.1984 0.1347 0.0819 0.0739 0.0741 0.1088 0.1341
h3 NN w/Trad. Vol.(16, 8, 450, 0.9, regression) 0.1514 0.1306 0.1625 0.1749 0.192 0.118 0.0808 0.069 0.0754 0.1099 0.133
NN w/Trad. Vol.(12, 6, 200, 0.5, regression) 0.1397 0.1351 0.1555 0.1503 0.2118 0.1109 0.0767 0.0757 0.0741 0.1059 0.1304
t• 0.1034 0.1264
NN w/Trad. Vol.(8, 4, 300, 0.2, regression) 0.1384 0.1268 0.136 0.1658 0.1949 0.1164 0.0826 0.0696 0.0687
NN w/Trad. Vol.(12, 6, 200, 0.7, regression) 0.1398 0.1366 0.1556 0.1491 0.2078 0.1135 0.0766 0.0758 0.0707 0.1091 0.1301
NN w/Trad. Vol.(16, 8, 250, 0.7, regression) 0.1578 0.139 0.1603 0.1673 0.1964 0.1271 0.0848 0.0755 0.0703 0.1 0.1343
NN w/Trad. Vol.(16, 8, 450, 0.1, regression) 0.1562 0.136 0.1574 0.1704 0.195 0.1231 0.0778 0.073 0.0713 0.1128 0.1338
>f Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802

N
CD
 o(0;
Nearest Neighbors Algorithm with Trading Volume (m:l = 2:1) : NN w/Trad. Vol.(m, I, k, 6, method)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Tfrad. Vol.(16, 8, 150, 0.1, regression) -0.0654 1.1094 1.0154 0.2145 1.4332 1.4142 0.5811 -0.2541 1.0436 1.2396 0.7373
NN w/Trad. Vol.(16, 8, 150, 0, regression) -0.1663 1.1369 1.0718 0.2171 1.2854 1.6616 0.2339 -0.1741 1.0765 1.1637 0.7164
NN w/Trad. Vol.(16, 8, 150, 0.2, regression) -0.2294 1.0295 0.947 0.222 1.1115 1.4429 0.4086 -0.315 0.727 1.2831 0.6341
(0D
9-P NN w/Trad. Vol.(16, 8, 150, 0.3, regression) -0.0179 0.917 1.1754 0.0623 0.9898 1.2824 0.4178 -0.4435 0.6679 1.1645 0.6126
NN w/Trad. Vol.(12, 6, 200, 0.4, regression) 1.3984 1.3991 0.4311 0.1002 -0.1204 0.2759 0.2258 1.9212 1.2865 0.9643 0.5973
NN w/Trad. Vol.(16, 8, 250, 0.8, regression) 0.2354 0.6335 1.0116 -0.7238 0.5227 3.031 1.4298 -1.1524 0.9896 1.0872 0.5931
NN w/Trad. Vol.(8, 4, 300, 0.4, regression) 1.4089 1.1354 -0.2925 1.487 -0.2087 2.2658 0.7192 -0.6455 -0.1758 0.9257 0.5874
- CD NN w/Trad. Vol.(16, 8, 300, 0, regression) 0.8273 0.2799 0.729 -0.3962 0.3575 2.0914 1.2131 -1.233 2.0197 0.7423 0.5613
-(D0 C NN w/rrad. Vol.(16, 8, 250, 1, regression) 0.2762 0.4809 1.1708 -0.3298 0.129 2.0836 1.4777 -1.2599 1.1631 1.1462 0.5449
(D o NN w/Trad. Vol.(14, 7, 500, 0.9, regression) 1.7365 0.9533 0.0489 -0.2552 0.6243 1.0964 1.4908 -1.0028 1.056 0.3462 0.5418
NN w/Trad. Vol.(16, 8, 250, 0.9, regression) 0.2652 0.2012 1.033 -0.2036 0.0335 2.5799 1.6018 -1.2599 1.1028 1.1462 0.5417
NN w/Trad. Vol.(4, 2, 50, 0.1, average) 1.426 0.3763 2.7401 -0.0713 -0.7999 2.1596 1.6419 -0.0165 1.8969 -0.2033 0.5395
NN w/Trad. Vol.(8, 4, 300, 0.5, regression) 1.4964 1.0228 -0.4407 1.0367 -0.0108 1.9422 0.8458 -0.8161 -0.1828 1.1199 0.5381
NN w/Trad. Vol.(16, 8, 300, 1, regression) 0.8539 0.3738 0.6164 -0.3638 0.5794 1.756 0.946 -1.233 1.7858 0.6606 0.535
NN w/Trad. Vol.(16, 8, 450, 0.9, regression) 0.901 0.3099 2.1683 -0.2212 -0.4852 2.3677 0.7865 -0.8768 1.0732 0.2711 0.5299
NN w/Trad. Vol.(12, 6, 200, 0.5, regression) 0.793 1.3821 0.4104 0.117 -0.222 0.3428 0.2601 1.8326 1.2865 0.9571 0.5274
NN w/Trad. Vol.(8, 4, 300, 0.2, regression) 1.4502 1.0999 0.2024 1.1955 -0.6284 1.8087 0.2872 -0.5563 -0.085 1.0611 0.5131
NN w/Trad. Vol1.(12, 6, 200, 0.7, regression) 1.1506 1.5532 0.1905 0.3013 -0.1456 -0.0902 0.1471 1.5304 1.4763 0.635 0.5106
NN w/Trad. Vol.(16, 8, 250, 0.7, regression) 0.2762 0.8168 0.9024 -0.9711 0.4851 2.6852 1.3832 -1.1419 1.0175 0.7903 0.5086
NN w/Trad. Vol.(16, 8, 450, 0.1, regression) 0.6969 0.695 1.762 -0.4695 -0.4337 2.599 -0.2695 -0.6589 1.4415 0.7371 0.503
00
10 Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Trad. Vol.(16, 8, 150, 0.1, regression) 0.55 0.53 0.52 0.55 0.52 0.52 0.5 0.51 0.53 0.47 0.52
NN w/Trad. Vol.(16, 8, 150, 0, regression) 0.53 0.52 0.52 0.56 0.5 0.52 0.51 0.51 0.53 0.46 0.52
t• (D
u
0
NN w/Trad. Vol.(16, 8, 150, 0.2, regression) 0.56
0.57
0.52
0.53
0.51
0.53
0.55
0.56
0.52
0.52
0.52
0.53
0.51
0.51
0.52
0.52
0.52
0.52
0.47
0.49
0.52
0.53
NN w/Trad. Vol.(16, 8, 150, 0.3, regression)
C-P NN w/Trad. Vol.(12, 6, 200, 0.4, regression) 0.44 0.58 0.51 0.46 0.58 0.52 0.51 0.57 0.48 0.5 0.51
NN w/Trad. Vol.(16, 8, 250, 0.8, regression) 0.48 0.57 0.55 0.57 0.59 0.53 0.53 0.46 0.49 0.49 0.53
NN w/Trad. Vol.(8, 4, 300, 0.4, regression) 0.5 0.51 0.47 0.46 0.5 0.44 0.47 0.46 0.48 0.52 0.48
C-f- NN w/Trad. Vol.(16, 8, 300, 0, regression)
NN wTrrad. Vol.(16, 8, 250, 1, regression)
0.51
0.48
0.54
0.55
0.51
0.55
0.58
0.58
0.58
0.55
0.56
0.6
0.5
0.51
0.47
0.47
0.48
0.48
0.51
0.49
0.52
0.53
NN w/Trad. Vol.(14, 7, 500, 0.9, regression) 0.56 0.48 0.46 0.46 0.48 0.52 0.47 0.51 0.47 0.5 0.49
NN w/Trad. Vol.(16, 8, 250, 0.9, regression) 0.48 0.56 0.56 0.58 0.58 0.56 0.52 0.47 0.49 0.49 0.53
NN w/Trad. Vol.(4, 2, 50, 0.1, average) 0.15 0.19 0.5 0.93 0.95 0.65 0.37 0.45 0.4 0.36 0.49
NN w/Trad. Vol.(8, 4, 300, 0.5, regression) 0.5 0.5 0.45 0.49 0.51 0.44 0.47 0.46 0.5 0.52 0.48
NN wfTrad. Vol.(16, 8, 300, 1, regression) 0.51 0.54 0.51 0.58 0.57 0.57 0.49 0.47 0.48 0.51 0.52
NN w/Trad. Vol.(16, 8, 450, 0.9, regression) 0.46 0.51 0.6 0.65 0.58 0.48 0.5 0.42 0.52 0.48 0.52
NN w/Trad. Vol.(12, 6, 200, 0.5, regression) 0.45 0.58 0.51 0.48 0.59 0.52 0.51 0.57 0.48 0.5 0.52
f-. .- NN w/Trad. Vol.(8, 4, 300, 0.2, regression) 0.5 0.49 0.48 0.47 0.49 0.46 0.47 0.45 0.48 0.5 0.48
NN w/Trad. Vol.(12, 6, 200, 0.7, regression) 0.45 0.58 0.5 0.48 0.58 0.51 0.51 0.58 0.45 0.5 0.52
NN w/Trad. Vol.(16, 8, 250, 0.7, regression) 0.48 0.57 0.55 0.57 0.61 0.52 0.52 0.48 0.5 0.5 0.53
NN w/Trad. Vol.(16, 8, 450, 0.1, regression) 0.5 0.56 0.53 0.59 0.57 0.53 0.47 0.48 0.52 0.5 0.52
(0 ©
c(
 Nearest Neighbors Algorithm with Trading Volume (m:l = 2:1) : NN w/Trad. Vol.(m, I, k, 8, method)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
NN w/Trad. Vol.(16, 8, 150, 0.1, regression) 121 116 130 117 118 115 126 118 130 124 121.5
NN w/Trad. Vol.(16, 8, 150, 0, regression) 127 118 136 121 120 119 132 120 130 124 124.7
NN w/Trad. Vo1.(16, 8, 150, 0.2, regression) 119 112 126 115 118 111 124 118 122 122 118.7
NN w/Trad. Vol.(16, 8, 150, 0.3, regression) 115 112 118 113 114 109 116 116 122 118 115.3
NN wfTrad. Vol.(12, 6, 200, 0.4, regression) 113 101 117 115 109 109 121 118 112 119 113.4
NN w/Trad. Vol.(16, 8, 250, 0.8, regression) 91 91 90 89 92 86 121 105 99 115 97.9
NN w/Trad. Vol.(8, 4, 300, 0.4, regression) 92 103 101 96 104 86 132 106 110 107 103.7
NN w/Trad. Vol.(16, 8, 300, 0, regression) 131 121 124 113 124 124 139 115 127 132 125
NN w/Trad. Vol.(16, 8, 250, 1, regression) 83 79 88 85 84 76 113 103 95 109 91.5
NN w/Trad. Vo1.(14, 7, 500, 0.9, regression) 66 65 70 84 76 73 107 97 111 92 84.1
NN w/Trad. Vol.(16, 8, 250, 0.9, regression) 85 85 88 89 86 82 119 103 97 109 94.3
NN w/Trad. Vol.(4, 2, 50, 0.1, average) 30 22 38 9 12 29 60 67 80 55 40.2
NN wfTrad. Vol.(8, 4, 300, 0.5, regression) 86 99 97 86 100 82 122 98 106 103 97.9
NN w/Trad. Vol.(16, 8, 300, 1, regression) 125 119 122 109 118 116 133 115 127 126 121
NN w/Trad. Vo1.(16, 8, 450, 0.9, regression) 89 81 85 74 80 64 111 93 99 109 88.5
NN w/Trad. Vol.(12, 6, 200, 0.5, regression) 109 95 117 111 105 103 121 114 112 117 110.4
NN w/Trad. Vol.(8, 4, 300, 0.2, regression) 106 119 121 118 114 108 136 116 110 115 116.3
NN w/Trad. Vol.(12, 6, 200, 0.7, regression) 101 83 113 109 97 97 115 106 102 113 103.6
NN w/Trad. Vol .(16, 8, 250, 0.7, regression) 95 97 90 91 92 90 123 111 99 117 100.5
NN w/Trad. Vol.(16, 8, 450, 0.1, regression) 129 115 120 113 114 118 141 123 115 139 122.7
B.2 Performances of Voting Strategy in Combina-
tion with Individual Strategies

231
Eu
r Voting among Moving Average Convergence Divergence Voting(k, period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.2667 0.0661 0 0 0 0 0 0 0 0 0.0305
Voting(10, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
0 Voting(15, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
30
Voting(20, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(25, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(30, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(35, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(40, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
0• Voting(45, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(50, monthly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(5, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
3, Voting(10, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(15, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Votin (20, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(25, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(30, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(35, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(40, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(45, yearly) 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Voting(50, yearly) 0.2667 0. 1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
t -,0
0
Cf. Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.2031 0.1565 0 0 0 0 0 0 0 0 0.0811
03
Voting(10, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
0~- Voting(15, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(20, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(25, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
CJ Voting(30, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(35, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(40, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(45, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(50, monthly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(5, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting( 10, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(15, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(20, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(25, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(30, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(35, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(40, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(45, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Voting(50, yearly) 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 cD
Voting amonr Moving Average Convergence Divergence Voting(k, period)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 1.3129 0.4225 NaN NaN NaN NaN NaN NaN NaN NaN 0.3761
CD Voting(10, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(15, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(20, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(25, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
C
(D)c Voting(30, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(35, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(40, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(45, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(50, monthly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(5, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(10, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(15, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(20, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(25, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(30, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(35, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(40, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(45, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Voting(50, yearly) 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 1 0.72 0 0 0 0 0 0 0 0 0.17
Cq
O Voting(10, monthly) 1 1 1 1 1 1 1 1 1 1 1
Voting(15, monthly) 1 1 1 1 1 1 1 1 1 1 1
Voting(20, monthly) 1 1 1 1 1 1 1 1 1 1 1
O' 0 Voting(25, monthly) 1 1 1 1 1 1 1 1 1 1 1
Voting(30, monthly) 1 1 1 1 1 1 1 1 1 1 1
0 Voting(35, monthly) 1 1 1 1 1 1 1 1 1 1 1
Voting(40, monthly) 1 1 1 1 1 1 1 1 1 1 1
Voting(45, monthly) 1 1 1 1 1 1 1 1 1 1 1
Voting(50, monthly) 1 1 1 1 1 1 1 1 1 1 1
Voting(5, yearly) 1 1 1 1 1 1 1 1 1 1 1
Voting(10, yearly) 1 1 1 1 1 1 1 1 1 1 1
Voting(15, yearly) 1 1 1 1 1 1 1 1 1 1 1
C( Voting(20, yearly) 1 1 1 1 1 1 1 1 1
Voting(25, yearly)1 1 1 1 1 1 1 1 1 1 1
Voting(30, yearly)1 1 1 1 1 1 1 1 1 1 1
Voting(35, yearly)1 1 1 1 1 1 1 1 1 1 1
Voting(40, yearly) 1 1 1 1 1 1 1 1 1 1 1
Voting(45, yearly)1 1 1 1 1 1 1 1 1 1 1
Voting(50, yearly) 1 11111 1 1 1 11 1
CD
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Table B.34: Performance Summary of Voting among Moving Average Convergence
and Divergence Strategies (Numbers of Trading)
234
 Voting among Trend-based Regression Algorithm: Voting(k, period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.118 0.0146 -0.0607 -0.0237 -0.1354 0.1767 0.0202 0.0037 0.0803 0.0389 0.0198
Voting(10, monthly) 0.096 0.0596 0.0865 0.0467 -0.2415 0.0669 0.0493 -0.0329 0.069 0.0453 0.0194
Voting(15, monthly) 0.1476 -0.0134 0.0887 0.0334 -0.1945 0.1341 0.0333 -0.0431 0.0617 0.0989 0.0299
Voting(20, monthly) 0.2608 -0.0522 0.0916 0.0445 -0.0851 0.0954 -0.0091 0.0551 0.0971 0.0734 0.0533
Voting(25, monthly) 0.1684 -0.0086 -0.033 0.0174 -0.0134 0.0869 0.0042 0.0534 0.1177 0.0619 0.0437
CD Voting(30, monthly) 0.1447 0.0042 -0.0948 0.062 -0.0572 0.088 -0.0183 0.023 0.1273 0.0598 0.0312
Voting(35, monthly) 0.1688 0.0454 -0.0395 -0.0864 -0.0826 0. 1674 -0.0244 0.0805 0.1303 0.0468 0.0366
Voting(40, monthly) 0.3476 0.0318 -0.0864 -0.1314 -0.0863 0.19 -0.0067 0.0585 0.1303 0.0549 0.0416
Voting(45, monthly) 0.2505 0.0261 -0.0907 -0.0979 -0.0701 0. 1486 -0.001 0.0582 0.1377 0.0242 0.0331
Voting(50, monthly) 0.3364 -0.0498 -0.1219 -0.0474 -0.0289 0.1373 -0.0067 0.0535 0.1033 0.0325 0.0341
Voting(5, yearly) 0.1823 0.0354 -0.0012 -0.1785 -0.2225 0.0966 0.0067 -0.0005 0.0842 0.0398 -0.0029
Voting(10, yearly) 0.2051 0.0107 -0.0803 -0.2429 -0.2225 0.1311 0.0569 -0.0411 0.0805 0.004 -0.0197
Voting(15, yearly) 0.2338 0.0521 -0.0533 -0.1703 -0.2455 0.0586 0.0598 -0.0476 0.0922 0.0513 -0.0058
Voting(20, yearly) 0.2107 0.0018 -0.0452 -0.0696 -0.2225 0.0487 0.0592 -0.0191 0.082 0.0574 0.0043
Voting(25, yearly) 0.2285 0.1126 0.0221 0.019 -0.2318 0.1239 0.0848 -0.0438 0.1027 0.0442 0.0391
CD
Voting(30, yearly) 0.2157 0.0505 -0.1228 -0.0682 -0.2318 0.0989 0.0591 -0.0225 0.0576 0.0407 0.0004
Voting(35, yearly) 0.1144 0.0068 -0.0896 -0.0295 -0.2318 0.1219 0.0354 -0.0369 0.0552 0.0418 -0.0065
CD Voting(40, yearly) 0.1154 0.0522 -0.0729 -0.0033 -0.2225 0.2055 0.0508 -0.0411 0.032 0.0418 0.0097
Voting(45, yearly) 0.1114 0.0994 -0.0301 0.0355 -0.2225 0.2055 0.0256 -0.0411 0.0531 0.0308 0.0208
Voting(50, yearly) 0.116 0.0747 -0.0301 0.0355 -0.2225 0.114 0.0256 -0.0411 0.0494 0.0326 0.0107
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.1337 0.1299 0.1473 0.1211 0.1715 0.1454 0.066 0.0658 0.0632 0.1059 0.1207
Voting(10, monthly) 0.1426 0.1298 0.1318 0.1262 0.1641 0.1414 0.0627 0.0553 0.0637 0.0999 0.1177
Voting(15, monthly) 0.1356 0.1277 0.1327 0.1338 0.145 0.1291 0.0677 0.0621 0.0755 0.0978 0.1147
Voting(20, monthly) 0. 1461 0.1267 0. 1298 0.116 0.168 0.126 0.0609 0.0569 0.0751 0.1045 0.1163
Voting(25, monthly) 0. 1347 0.1258 0.1298 0.1145 0.1731 0.1245 0.0618 0.0626 0.0735 0.102 0.1153
Voting(30, monthly) 0.1203 0.1223 0.1212 0.1354 0.1739 0.1095 0.0613 0.0619 0.0719 0.1057 0.1134
Voting(35, monthly) 0.1166 0.1142 0.1247 0.1479 0.1761 0.1206 0.0602 0.068 0.0708 0.1052 0.1157
N Voting(40, monthly) 0.1177 0.1183 0.1169 0.1466 0.1727 0.1231 0.064 0.0664 0.0728 0.1113 0.1158
CD 0.0733 0.1073 0.1165
Voting(45, monthly) 0.1112 0.1137 0.1323 0.1537 0.1754 0.1174 0.0589 0.0664
Voting(50, monthly) 0.119 0.1063 0.1307 0.1452 0.1804 0.1188 0.0598 0.0642 0.0745 0.1083 0.1163
Voting(5, yearly) 0.1584 0.113 0.1431 0.1142 0.1734 0.1407 0.0852 0.0677 0.0682 0.11 0.1224
Voting(10, yearly) 0.1424 0.1047 0.1315 0.1108 0.1734 0.1408 0.0647 0.066 0.0663 0.1106 0.1166
Voting(15, yearly) 0.1438 0.1013 0.1365 0.1145 0.1759 0.1376 0.061 0.0789 0.0696 0.1078 0.1179
Voting(20, yearly) 0.1417 0.1105 0.0999 0.0918 0.1734 0.1439 0.0617 0.0712 0.0703 0.1072 0.1126
cJ Voting(25, yearly) 0.1441 0.1207 0.0993 0.092 0.1672 0.1424 0.0829 0.0755 0.0696 0.1079 0.1144
¢-F
Voting(30, yearly) 0.1494 0.1098 0.1388 0.1024 0.1672 0.1495 0.06 0.0769 0.0702 0.1078 0.1185
Voting(35, yearly) 0.1428 0.1104 0.0947 0.1006 0.1672 0.1486 0.087 0.0879 0.069 0.1078 0.1155
Voting(40, yearly) 0.1423 0.1172 0.1129 0.097 0.1734 0.1527 0.0923 0.066 0.0656 0.1078 0.1176
Voting(45, yearly) 0.1425 0.1122 0.0738 0.1047 0.1734 0.1527 0.0938 0.066 0.0685 0.1076 0.1149
Voting(50, yearly) 0.143 0.113 0.0738 0.1047 0.1734 0.0846 0.0938 0.066 0.0686 0.1076 0.1078
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 SVoting a ong Trend-based Regression Algorithm: Voting(k, period)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.8827 0.1121 -0.4117 -0.196 -0.7892 1.2153 0.306 0.0567 1.2713 0.367 0.1640
Voting(10, monthly) 0.6729 0.4593 0.6567 0.3703 -1.4718 0.4732 0.7852 -0.5956 1.0835 0.4536 0.1648
Voting(15, monthly) 1.0883 -0.1051 0.6682 0.2493 -1.342 1.0391 0.4921 -0.6952 0.8175 1.011 0.2607
Voting(20, monthly) 1.7847 -0.4118 0.7054 0.3835 -0.5063 0.7577 -0.1501 0.9693 1.2933 0.7026 0.4583
Voting(25, monthly) 1.2507 -0.0685 -0.2542 0.152 -0.0773 0.6983 0.0672 0.8532 1.6007 0.6068 0.3790
cD -0.2981 0.372 1.7706 0.5661 0.2751
Voting(30, monthly) 1.2033 0.034 -0.782 0.4583 -0.3287 0.8039
Voting(35, monthly) 1.448 0.3972 -0.3165 -0.5841 -0.4693 1.3887 -0.4054 1.1844 1.8415 0.4445 0.3163
Voting(40, monthly) 2.9546 0.2687 -0.7395 -0.8968 -0.4999 1.5434 -0.105 0.8809 1.7894 0.4931 0.3592
Voting(45, monthly) 2.2523 0.2298 -0.6859 -0.6369 -0.3996 1.2654 -0.0162 0.8772 1.8793 0.2252 0.2841
Voting(50, monthly) 2.8269 -0.4685 -0.9327 -0.3264 -0.1602 1.156 -0.1113 0.8342 1.3861 0.3 0.2932
cP Voting(5, yearly) 1.1507 0.3129 -0.0083 -1.5639 -1.2835 0.6862 0.0782 -0.0074 1.2354 0.3615 -0.0237
Voting(10, yearly) 1.4402 0.1022 -0.6108 -2.1931 -1.2835 0.9311 0.8787 -0.6218 1.2144 0.0364 -0.1690
Voting(15, yearly) 1.6259 0.5147 -0.3904 -1.4879 -1.396 0.4261 0.98 -0.6033 1.3249 0.4755 -0.0492
Voting(20, yearly) 1.4872 0.0167 -0.4522 -0.7585 -1.2835 0.3387 0.9603 -0.2688 1.165 0.5349 0.0382
Voting(25, yearly) 1.5858 0.9326 0.2224 0.2063 -1.3864 0.8702 1.0229 -0.581 1.4762 0.4095 0.3418
Voting(30, yearly) 1.4432 0.4599 -0.8851 -0.6661 -1.3864 0.6614 0.984 -0.2926 0.8211 0.3778 0.0034
02 Voting(35, yearly) 0.801 0.0619 -0.9465 -0.2933 -1.3864 0.82 0.4073 -0.4193 0.8 0.3872 -0.0563
Voting(40, yearly) 0.8109 0.445 -0.6455 -0.0344 -1.2835 1.3459 0.5511 -0.6218 0.4871 0.3872 0.0825
Voting(45, yearly) 0.7819 0.8861 -0.4084 0.3394 -1.2835 1.3459 0.2732 -0.6218 0.776 0.2864 0.1810
Voting(50, yearly) 0.8109 0.6611 -0.4084 0.3394 -1.2835 1.3471 0.2732 -0.6218 0.7205 0.3024 0.0993
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.4 0.52 0.36 0.47 0.54 0.72 0.32 0.52 0.46 0.37 0.47
Voting(10, monthly) 0.4 0.4 0.32 0.5 0.48 0.62 0.29 0.41 0.49 0.32 0.42
Voting(15, monthly) 0.36 0.41 0.32 0.51 0.35 0.57 0.33 0.46 0.59 0.36 0.43
Voting(20, monthly) 0.54 0.38 0.3 0.43 0.4 0.55 0.3 0.43 0.59 0.36 0.43
Voting(25, monthly) 0.38 0.38 0.29 0.42 0.49 0.55 0.31 0.46 0.59 0.36 0.42
=- Voting(30, monthly) 0.3 0.37 0.29 0.54 0.47 0.44 0.3 0.46 0.63 0.4 0.42
k
SCD
Voting(35, monthly) 0.31 0.33 0.33 0.56 0.5 0.52 0.29 0.51 0.61 0.39 0.43
Voting(40, monthly) 0.38 0.34 0.31 0.54 0.49 0.54 0.33 0.5 0.62 0.41 0.45
Voting(45, monthly) 0.33 0.33 0.31 0.62 0.51 0.5 0.26 0.5 0.62 0.39 0.44
Voting(50, monthly) 0.35 0.3 0.27 0.54 0.49 0.5 0.27 0.48 0.62 0.37 0.42
Voting(5, yearly) 0.55 0.46 0.48 0.45 0.56 0.71 0.63 0.42 0.54 0.47 0.53
Voting(10, yearly) 0.48 0.46 0.25 0.46 0.56 0.7 0.35 0.33 0.54 0.43 0.45
Voting(15, yearly) 0.5 0.44 0.31 0.47 0.57 0.65 0.3 0.54 0.55 0.46 0.48
Voting(20, yearly) 0.48 0.45 0.16 0.29 0.56 0.7 0.31 0.5 0.55 0.46 0.45
Voting(25, yearly) 0.51 0.51 0.13 0.27 0.55 0.73 0.61 0.47 0.55 0.48 0.48
Cd
Voting(30, yearly) 0.5 0.43 0.3 0.27 0.55 0.81 0.27 0.47 0.54 0.48 0.46
Voting(35, yearly) 0.46 0.45 0.1 0.25 0.55 0.8 0.64 0.65 0.56 0.47 0.49
Voting(40, yearly) 0.46 0.43 0.17 0.25 0.56 0.9 0.71 0.33 0.54 0.47 0.48
Voting(45, yearly) 0.44 0.38 0.09 0.25 0.56 0.9 0.71 0.33 0.54 0.46 0.47
Voting(50, yearly) 0.46 0.41 0.09 0.25 0.56 0.48 0.71 0.33 0.54 0.47 0.43
 Voting among Trend-based Regression Algorithm: Voting(k, period)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
U-- Voting(5, monthly) 69 66 69 59 52 41 70 67 56 67 61.6
Voting( 10, monthly) 58 62 68 45 60 39 67 62 64 67 59.2
CD Voting(15, monthly) 62 64 60 55 55 50 73 68 58 69 61.4
Voting(20, monthly) 64 60 52 49 55 44 64 71 56 67 58.2
Voting(25, monthly) 59 55 56 47 55 46 62 71 50 71 57.2
Voting(30, monthly) 53 51 54 39 45 48 55 72 48 66 53.1
Voting(35, monthly) 55 47 58 31 47 40 59 70 48 62 51.7
0 Voting(40, monthly) 55 47 56 35 47 40 59 62 52 60 51.3
m Voting(45, monthly) 51 49 48 27 43 46 59 64 54 53 49.4
Voting(50, monthly) 46 50 44 23 41 46 57 66 48 55 47.6
Voting(5, yearly) 95 21 30 83 5 25 17 8 134 43 46.1
Voting(10, yearly) 105 28 21 65 5 21 8 1 140 38 43.2
O Voting(15, yearly) 93 26 33 41 7 20 9 10 133 40 41.2
Voting(20, yearly) 101 23 14 21 5 14 9 10 135 44 37.6
Voting(25, yearly) 95 29 10 17 3 19 12 8 125 46 36.4
Voting(30, yearly) 93 28 10 18 3 10 10 7 129 46 35.4
Voting(35, yearly) 73 26 3 15 3 10 9 3 128 44 31.4
Voting(40, yearly) 70 31 3 13 5 5 8 1 124 44 30.4
Voting(45, yearly) 71 30 1 13 5 5 6 1 126 50 30.8
Voting(50, yearly) 61 26 1 13 5 1 6 1 126 46 28.6
 c/r
CDJ•

Voting amonq Trend-based Regression Algorithm with Trading Volume (:W) = 1:1) : Voting(k, period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.301 0.0284 -0.0845 0.0852 -0.1592 0.1394 0.0716 -0.0497 0.122 0.1302 0.051
Voting(10, monthly) 0.195 0.114 -0.0577 0.1859 -0.1342 0.1055 0.1008 -0.0384 0.1278 0.1506 0.0694
Voting(15, monthly) 0.1227 0.0502 -0.0687 0.1278 -0.1104 0.0618 0.056 -0.0289 0.1446 0.1239 0.0443
(D Voting(20, monthly) 0.1048 0.0612 -0.0569 0.117 -0.0152 0.0035 0.0574 -0.0419 0.0869 0.0642 0.0364
Voting(25, monthly) 0.268 0.1217 -0.0576 0.0374 -0.0918 -0.0068 0.0042 -0.0339 0.1066 0.0141 0.0317
Voting(30, monthly) 0.2708 0.1409 -0.0245 -0.0572 -0.1475 -0.0039 0.0448 -0.0451 0.1047 0.014 0.0238
Voting(35, monthly) 0.2999 0.1209 0.0058 -0.0659 -0.0357 -0.0286 0.0634 -0.0136 0.0754 0.0386 0.0415
Voting(40, monthly) 0.2844 0.1316 -0.0798 -0.0552 -0.0591 -0.0146 0.0998 -0.0306 0.1157 0.0139 0.0352
Voting(45, monthly) 0.2181 0.1777 -0.0634 -0.0587 -0.0844 0.013 0.0879 0.0125 0.1143 0.0043 0.0376
Voting(50, monthly) 0.2024 0.2146 -0.0494 -0.0497 -0.1557 -0.0003 0.0735 0.0063 0.097 -0.0322 0.0247
Voting(5, yearly) 0.3105 0.0605 -0.0501 -0.0081 -0.2541 0.1371 0.0936 -0.0252 0.042 -0.0239 0.0188
Voting(10, yearly) 0.2882 0.0558 -0.0425 0.0291 -0.2541 0.1632 0.1899 -0.0163 0.0332 -0.0239 0.0322
Voting(15, yearly) 0.3174 0.0741 -0.046 0.0885 -0.1072 0.1371 0.1509 0.0052 0.0404 -0.0239 0.0577
Voting(20, yearly) 0.2172 0.0674 -0.1056 0.0508 -0.1825 0.1251 0.1774 0.015 0.0461 -0.0074 0.0337
Voting(25, yearly) 0.196 0.0609 -0.1056 0.0772 -0.1777 0.1354 0.1713 -0.0218 0.0512 0.0885 0.0411
Voting(30, yearly) 0.1675 0.0557 -0.0959 -0.0064 -0.2194 0.1304 0.1685 0.0264 0.055 0.0352 0.025
Voting(35, yearly) 0.184 0.0463 -0.0927 -0.0608 -0.2327 0.0632 0.1593 0.038 0.0856 0.0353 0.0154
C• Oo -0.1071 -0.023 -0.1915 0.0572 0.181 0.0274 0.0745 0.0511 0.0256
Voting(40, yearly) 0.1739 0.0731
Voting(45, yearly) 0.1623 0.0836 -0.0685 -0.0531 -0.1807 0.1028 0.1449 0.021 0.0745 -0.0122 0.0222
Voting(50, yearly) 0.1489 0.0595 -0.0227 -0.0964 -0.1857 0.0846 0.1342 0.0169 0.0749 -0.0237 0.014
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.1507 0.123 0.1295 0.1332 0.1801 0.1212 0.0868 0.0734 0.0733 0.1039 0.1219
Voting(10, monthly) 0.1565 0.1306 0.1474 0.1336 0.1672 0.1136 0.0828 0.0729 0.076 0.1031 0.1227
Voting(15, monthly) 0.1553 0.1277 0.1585 0.1297 0.1685 0.1171 0.0813 0.0693 0.0767 0.1113 0.1242
Voting(20, monthly) 0.1573 0.131 0.1605 0.1245 0.1642 0.1164 0.0838 0.0683 0.0726 0.1155 0.1241
aq Voting(25, monthly) 0.1455 0.1287 0.1585 0.1183 0.1847 0.1184 0.0871 0.0686 0.0728 0.1113 0.1245
Voting(30, monthly) 0.1448 0.1355 0.1586 0.1238 0.1697 0.1183 0.0835 0.0695 0.0698 0.1072 0.1228
eCDr CD Voting(35, monthly) 0.1435 0.1336 0.1615 0.126 0.1836 0.1125 0.0867 0.069 0.067 0.1057 0.1244
aN
C • 0.1293 0.1855 0.1157 0.0832 0.071 0.0718 0.1052 0.1251
Voting(40, monthly) 0.1431 0.1341 0.159
Voting(45, monthly) 0.1453 0.1353 0.1628 0.1276 0.1904 0.1175 0.0839 0.0697 0.0738 0.1149 0.1276
Voting(50, monthly) 0.1469 0.1362 0.163 0.1245 0.1848 0.1137 0.0818 0.0708 0.0692 0.1198 0.1265
Voting(5, yearly) 0.1309 0.1285 0.1456 0.1543 0.1678 0.1092 0.081 0.0688 0.0661 0.1271 0.1227
I t Voting(10, yearly) 0.1301 0.1275 0.1458 0.1513 0.1678 0.1116 0.0808 0.0674 0.0656 0.1271 0.1222
Voting(15, yearly) 0.1307 0.128 0.1457 0.1526 0.1693 0.1092 0.0822 0.0681 0.0661 0.1271 0.1227
~02 Voting(20, yearly) 0.1333 0.1282 0.1474 0.1511 0.1698 0.1088 0.0809 0.0679 0.0663 0.1261 0.1228
Voting(25, yearly) 0.1397 0.1299 0.1474 0.1491 0.1696 0.1092 0.082 0.0689 0.0689 0.1188 0.123
Voting(30, yearly) 0.1358 0.13 0.147 0.1498 0.1714 0.1076 0.082 0.0674 0.0687 0.1243 0.1232
r •.• Voting(35, yearly) 0.136 0.1291 0.1471 0.1538 0.1676 0.1073 0.081 0.0686 0.074 0.1247 0.1234
Voting(40, yearly) 0.136 0.126 0.1466 0.1561 0.1722 0.1095 0.0806 0.0704 0.0732 0.1234 0.1241
co 0.1235
Voting(45, yearly) 0.1356 0.1269 0.1435 0.1555 0.1721 0.1082 0.0793 0.0676 0.0732 0.1255
Voting(50, yearly) . 1369 0.1248 0.1432 0.1424 0.1719 0.1082 0.0793 0.0682 0.0732 0.1224 0.1215
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Voting amoný Trend-based Regression Algorithm with Trading Volume (V:W) = (1:1) : Voting(k, period)
Oq Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 1.9974 0.2311 -0.6528 0.6398 -0.8843 1.1501 0.8255 -0.6774 1.6633 1.2531 0.4184
Voting(10, monthly) 1.2454 0.8724 -0.3915 1.3914 -0.8023 0.9283 1.2174 -0.5265 1.6813 1.4612 0.5656
Voting(15, monthly) 0.7901 0.3931 -0.433 0.9849 -0.6548 0.5276 0.6882 -0.4175 1.8844 1.1131 0.3567
Voting(20, monthly) 0.6663 0.4674 -0.3548 0.9401 -0.0926 0.0299 0.684 -0.6129 1.1971 0.5562 0.2933
p Voting(25, monthly) 1.8413 0.9462 -0.3636 0.316 -0.4972 -0.0575 0.0486 -0.4938 1.4656 0.1269 0.2546
Voting(30, monthly) 1.8701 1.0401 -0.1543 -0.4621 -0.8691 -0.0332 0.5369 -0.6489 1.5001 0.1308 0.1938
Voting(35, monthly) 2.0906 0.9047 0.0362 -0.5232 -0.1947 -0.2545 0.7316 -0.1976 1.1253 0.3647 0.3336
Voting(40, monthly) 1.9877 0.9811 -0.5022 -0.4271 -0.3187 -0.1258 1.1999 -0.4319 1.612 0.1322 0.2814
Voting(45, monthly) 1.5007 1.3129 -0.3898 -0.4601 -0.4433 0.1106 1.0475 0.1801 1.5492 0.0375 0.2947
Voting(50, monthly) 1.3781 1.5759 -0.3032 -0.3991 -0.8428 -0.003 0.8984 0.0884 1.4016 -0.2688 0.1953
Voting(5, yearly) 2.3725 0.4707 -0.3442 -0.0523 -1.514 1.2553 1.1558 -0.3662 0.6352 -0.1879 0.1532
Voting(10, yearly) 2.2155 0.4379 -0.2915 0.1925 -1.514 1.4625 2.3487 -0.2423 0.5059 -0.1879 0.2635
Voting(15, yearly) 2.4279 0.5792 -0.3154 0.5801 -0.6329 1.2553 1.8352 0.076 0.6105 -0.1879 0.4703
Voting(20, yearly) 1.629 0.5254 -0.7165 0.336 -1.0748 1.1496 2.1923 0.2213 0.6944 -0.059 0.2744
Voting(25, yearly) 1.4031 0.4686 -0.7165 0.5178 -1.0476 1.2399 2.0895 -0.3169 0.7429 0.7451 0.3341
Voting(30, yearly) 1.2337 0.4285 -0.6525 -0.0426 -1.2796 1.2124 2.0544 0.3914 0.8009 0.2832 0.2029
Voting(35, yearly) 1.3535 0.3585 -0.63 -0.3955 -1.388 0.5894 1.9671 0.5545 1.1562 0.2828 0.1248
Voting(40, yearly) 1.2788 0.5805 -0.7306 -0.1477 -1.1124 0.5225 2.2453 0.3889 1.0179 0.4143 0.2063
O Voting(45, yearly) 1.1967 0.6592 -0.4771 -0.3417 -1.0497 0.9505 1.8273 0.3108 1.0179 -0.0968 0.1798
Voting(S0, yearly) 1.0876 0.477 -0.1584 -0.6772 -1.0803 0.782 1.6921 0.2482 1.0229 -0.1937 0.1152
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
O CD • Voting(5, monthly) 0.48 0.48 0.44 0.43 0.44 0.54 0.48 0.51 0.5 0.52 0.48
Voting(10, monthly) 0.5 0.49 0.44 0.44 0.41 0.51 0.45 0.51 0.49 0.52 0.48
, pO Voting(15, monthly) 0.48 0.48 0.47 0.45 0.41 0.52 0.45 0.48 0.53 0.52 0.48
Voting(20, monthly) 0.5 0.52 0.47 0.45 0.39 0.5 0.47 0.46 0.52 0.51 0.48
Votin 9 (25, monthly) 0.54 0.52 0.47 0.44 0.44 0.52 0.5 0.49 0.49 0.5 0.49
Voting(30, monthly) 0.51 0.52 0.46 0.46 0.42 0.52 0.47 0.49 0.49 0.5 0.48
Voting(35, monthly) 0.51 0.54 0.47 0.46 0.46 0.51 0.49 0.51 0.48 0.5 0.49
Voting(40, monthly) 0.52 0.54 0.46 0.46 0.47 0.52 0.48 0.51 0.51 0.48 0.49
Voting(45, monthly) 0.53 0.53 0.48 0.46 0.46 0.51 0.48 0.52 0.53 0.52 0.5
Voting(50, monthly) 0.53 0.53 0.5 0.45 0.48 0.51 0.46 0.5 0.52 0.53 0.5
Voting(5, yearly) 0.5 0.52 0.5 0.5 0.48 0.5 0.48 0.46 0.48 0.51 0.49
Voting(10, yearly) 0.49 0.51 0.5 0.49 0.48 0.5 0.5 0.46 0.47 0.51 0.49
Voting(15, yearly) 0.49 0.51 0.5 0.5 0.48 0.5 0.48 0.46 0.47 0.51 0.49
Voting(20, yearly) 0.48 0.51 0.49 0.49 0.49 0.5 0.51 0.47 0.48 0.5 0.49
Voting(25, yearly) 0.5 0.54 0.49 0.49 0.5 0.5 0.5 0.47 0.5 0.49 0.5
Voting(30, yearly) 0.48 0.54 0.49 0.48 0.48 0.52 0.5 0.47 0.5 0.49 0.5
Voting(35, yearly) 0.48 0.54 0.49 0.49 0.46 0.52 0.49 0.46 0.53 0.5 0.5
Voting(40, yearly) 0.47 0.53 0.48 0.49 0.47 0.53 0.49 0.47 0.52 0.52 0.5
Voting(45, yearly) 0.47 0.54 0.48 0.49 0.47 0.53 0.48 0.45 0.52 0.52 0.5
Voting(50, yearly) 0.47 0.54 0.48 0.48 0.48 0.53 0.47 0.46 0.52 0.52 0.49
 Voting amonq Trend-based Regression Algorithm with Trading Volume (V:W) = (1:1) : Voting(k, period)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 131 143 100 110 96 99 129 123 143 135 120.9
Voting(10, monthly) 125 127 102 112 94 97 127 113 131 133 116.1
Voting(15, monthly) 133 149 110 114 94 117 137 115 147 137 125.3
Voting(20, monthly) 137 145 108 113 97 107 139 117 147 127 123.7
Voting(25, monthly) 133 135 118 118 118 125 157 135 149 129 131.7
Voting(30, monthly) 133 135 116 117 109 127 149 137 145 133 130.1
Voting(35, monthly) 133 133 110 125 119 135 145 139 147 143 132.9
Voting(40, monthly) 133 129 108 125 121 135 149 139 147 147 133.3
Voting(45, monthly) 137 129 114 125 123 137 147 133 143 145 133.3
Voting(50, monthly) 139 133 112 123 121 133 145 139 141 135 132.1
Voting(5, yearly) 141 132 130 127 114 110 82 151 137 139 126.3
Voting(10, yearly) 139 134 132 127 114 110 118 153 141 139 130.7
Voting(15, yearly) 133 136 132 129 124 110 128 153 139 139 132.3
Voting(20, yearly) 123 136 134 127 122 112 116 133 141 139 128.3
Voting(25, yearly) 129 140 134 133 126 110 122 153 145 139 133.1
Voting(30, yearly) 127 142 134 127 128 114 122 141 143 137 131.5
Voting(35, yearly) 127 142 134 129 128 118 118 141 139 129 130.5
Voting(40, yearly) 129 144 132 127 128 118 118 141 141 135 131.3
Voting(45, yearly) 129 146 138 127 128 126 128 141 141 131 133.5
Voting(50, yearly) 127 146 140 127 124 130 128 143 141 129 133.5
 cn

Voting among Trend-based Regression Algorithm with Trading Volume (V:W) = (2:1) : Voting(k, period)
CD
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) -0.0765 0.1248 -0.1701 -0.0713 -0.0028 -0.0306 0.1033 0.0586 -0.0496 0.1659 0.0002
Voting(10, monthly) -0.0605 0.2791 -0.1561 -0.0082 -0.1037 0.0051 0.112 0.0399 0.0414 0.0927 0.0177
Voting(15, monthly) -0.0096 0.2385 -0.1686 -0.0816 -0.0667 0.0265 0.0596 0.0497 0.0079 0.1492 0.0146
Voting(20, monthly) 0.0292 0.1388 -0.1751 -0.1189 -0.0309 0.1065 0.0625 0.0356 -0.0028 0.1147 0.0112
Voting(25, monthly) 0.2671 0.0886 -0.0579 -0.0305 -0.1451 0.0933 0.0145 -0.0024 0.0216 0.1213 0.0316
Voting(30, monthly) 0.2335 0.0921 -0.0403 0.0171 -0.088 0.0964 0.0652 -0.0025 0.0051 0.0964 0.0441
Voting(35, monthly) 0.2182 0.1688 -0.1584 -0.0366 -0.1306 0.0618 0.0321 0.0262 -0.0069 0.0973 0.0209
Voting(40, monthly) 0.1573 0.1912 -0.146 0.0217 -0.0857 0.0892 0.0358 0.0323 0.0268 0.0745 0.0352
Voting(45, monthly) 0.1812 0.2302 -0.1033 -0.1053 -0.037 -0.0139 0.0073 0.0218 0.0369 0. 1224 0.0286
Voting(50, monthly) 0.1419 0.0864 -0.1206 -0.0884 -0.0647 -0.0093 -0.0104 0.0093 0.0737 0.0842 0.0069
Voting(5, yearly) 0.2152 -0.0884 0.2217 -0.0496 0.1182 0.0072 0.0687 -0.0251 0.0651 0.1989 0.0678
Voting(10, yearly) 0.1925 -0.0203 0.077 -0.0164 0.019 0.0145 0.0594 -0.0205 0.067 0.2185 0.0561
Voting(15, yearly) 0.2334 0.0131 0.1817 -0.0648 0.0416 0.0145 0.0949 -0.0124 0.0931 0.2185 0.0771
Voting(20, yearly) 0.1888 0.0375 0.1737 -0.0129 0.0505 0.0167 0.0582 -0.0077 0.0919 0.2393 0.0805
Voting(25, yearly) 0.1925 0.0301 0.1426 -0.0283 -0.0196 0.0227 0.0545 -0.0288 0.0968 0.2003 0.0631
cjOw Voting(30, yearly) 0.177 0.0726 0.1394 -0.1149 -0.0181 0.0251 0.0744 -0.0184 0.1038 0.2421 0.0636
Voting(35, yearly) 0.1944 0.066 0.1358 -0.1343 -0.0647 0.0911 0.0901 0.0372 0.1151 0.2365 0.0713
Voting(40, yearly) 0.2217 0.0855 0. 1252 -0.136 -0.1036 0.134 0.0801 0.0544 0.1211 0.2491 0.0765
Voting(45, yearly) 0.251 0.0529 0.0784 -0.1555 -0.156 0.1071 0.0789 0.0241 0.1211 0.2438 0.0562
Voting(50, yearly) 0.2545 0.03 0.1146 -0.1502 -0.1575 0.1847 0.076 0.0617 0.1229 0.2423 0.0689
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
( DC
> ~CDL
q
" Voting(5, monthly) 0.1345 0.1282 0.1589 0.1504 0.1971 0.1124 0.0773 0.0749 0.0665 0.1105 0.1273
Voting(10, monthly) 0.1393 0.1323 0.1607 0.1561 0.1952 0.1162 0.0785 0.0735 0.0674 0.1134 0.1295
Voting(15, monthly) 0.1341 0.1368 0.1512 0.1598 0.1973 0.1175 0.077 0.0729 0.0687 0.1108 0.1289
Voting(20, monthly) 0.1143 0.1332 0.159 0.1546 0.1984 0.1134 0.0739 0.0702 0.0691 0.1156 0.1268
PD 0 Voting(25, monthly) 0.1122 0.1263 0.1603 0.1515 0.1973 0.1204 0.0744 0.0664 0.0698 0.1172 0.1262
Voting(30, monthly) 0.1145 0.1248 0.1666 0.1483 0.2095 0.1193 0.0737 0.0685 0.0692 0.1202 0.1288
c-F Voting(35, monthly) 0.1133 0.1265 0.1584 0.1529 0.2111 0.1194 0.0752 0.0728 0.0687 0.1165 0.1286
CD
e
Voting(40, monthly) 0.1403 0.124 0.1556 0.1541 0.2076 0.1161 0.0709 0.0722 0.0715 0.1151 0.1297
Voting(45, monthly) 0.138 0.1304 0.1558 0.1468 0.2023 0.1168 0.0696 0.0732 0.0759 0.115 0.1287
Voting(50, monthly) 0.1403 0.1317 0.1558 0.147 0.2014 0.1195 0.0711 0.0746 0.0757 0.1181 0.1296
Voting(5, yearly) 0.1211 0.1226 0.1689 0.1382 0.2021 0.1097 0.0776 0.0682 0.0754 0.1116 0.1261
Voting(10, yearly) 0.123 0.1274 0.1613 0.1409 0.2064 0.1093 0.0835 0.068 0,0754 0.1102 0.127
Voting(15, yearly) 0.125 0.1305 0.1662 0.1395 0.2056 0.1093 0.0783 0.0685 0.0751 0.1102 0.1275
Voting(20, yearly) 0.1243 0.1291 0.1648 0.1365 0.206 0.1093 0.0773 0.0692 0.0766 0.1093 0.1268
Voting(25, yearly) 0.1246 0.1264 0.1527 0.1443 0.207 0.1063 0.0788 0.0726 0.0763 0.1064 0.1259
Voting(30, yearly) 0.123 0.1273 0.1524 0.14 0.1988 0.1068 0.0797 0.0758 0.0782 0.1093 0.1246
Voting(35, yearly) 0.1244 0.129 0.1519 0.1395 0.2019 0.1086 0.0802 0.0753 0.0784 0.1094 0.1255
Voting(40, yearly) 0.1225 0.1272 0.1516 0.1428 0.1925 0.1105 0.0801 0.0739 0.0785 0.1096 0.124
CD Voting(45, yearly) 0.1213 0.1283 0.1516 0.1446 0.1816 0.1126 0.0801 0.0773 0.0787 0.1095 0.123
Voting(50, yearly) 0.1213 0.1308 0.1512 0.1446 0.19 0.1176 0.0802 0.0759 0.0787 0.1095 0.1249
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802

CD_
 cO

Voting amon Trend-based Regression Algorithm with Trading Volume (V:W) = (2:1) : Voting(k, period)
O
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
(09 Voting(5, monthly) -0.569 0.9737 -1.0706 -0.4739 -0.0142 -0.2724 1.3366 0.7822 -0.7464 1.5017 0.0016
ci:
Voting(10, monthly) -0.4341 2.1105 -0.9717 -0.0525 -0.5314 0.044 1.4256 0.5429 0.6136 0.8178 0.1367
Voting(15, monthly) -0.0719 1.7442 -1.115 -0.5105 -0.3382 0.2253 0.7746 0.6822 0.1156 1.3463 0.1133
Voting(20, monthly) 0.2551 1.0426 -1.1016 -0.7689 -0.1556 0.9393 0.8458 0.5073 -0.0407 0.9925 0.0883
Voting(25, monthly) 2.3805 0.7015 -0.3612 -0.2011 -0.7357 0.7752 0.1943 -0.0356 0.3103 1.0343 0.2504
Voting(30, monthly) 2.0382 0.7382 -0.242 0.1149 -0.4202 0.8082 0.8848 -0.0363 0.073 0.8015 0.3424
Voting(35, monthly) 1.926 1.3341 -0.9999 -0.239 -0.6186 0.5176 0.4267 0.3594 -0.0999 0.8353 0.1625
Voting(40, monthly) 1.1208 1.5423 -0.9384 0.1408 -0.4127 0.7678 0.5049 0.4469 0.3755 0.6475 0.2714
Voting(45, monthly) 1.3129 1.7652 -0.6634 -0.7174 -0.183 -0.1188 0.105 0.2978 0.4861 1.0644 0.2222
Voting(50, monthly) 1.0108 0.6561 -0.7743 -0.6016 -0.3212 -0.0778 -0.1463 0.1253 0.9729 0.7134 0.0532
Voting(5, yearly) 1.7773 -0.721 1.3126 -0.3587 0.585 0.0656 0.8852 -0.3684 0.8637 1.7822 0.5377
Voting(10, yearly) 1.5657 -0.1595 0.4776 -0.1164 0.0922 0.1325 0.7111 -0.3017 0.8881 1.9836 0.4417
Voting(15, yearly) 1.8671 0.1007 1.0935 -0.4647 0.2022 0.1325 1.2111 -0.1813 1.24 1.9836 0.6047
Voting(20, yearly) 1.5189 0.2909 1.0539 -0.0944 0.2452 0.1527 0.7533 -0.1106 1.2001 2.1889 0.6349
Voting(25, yearly) 1.5452 0.2381 0.9337 -0.1962 -0.0945 0.2132 0.6911 -0.397 1.2694 1.8829 0.5012
Voting(30, yearly) 1.4388 0.5705 0.9146 -0.8207 -0.0912 0.2354 0.9337 -0.243 1.3283 2.215 0.5104
Voting(35, yearly) 1.563 0.5114 0.8941 -0.9628 -0.3204 0.8391 1.123 0.4933 1.4672 2.1621 0.5681
Voting(40, yearly) 1.8094 0.6723 0.8257 -0.9522 -0.5379 1.2128 0.9996 0.7361 1.5431 2.2729 0.6169
Voting(45, yearly) 2.0692 0.4119 0.517 -1.0751 -0.8588 0.9512 0.9851 0.3112 1.5386 2.2263 0.4569
Voting(50, yearly) 2.097 0.2294 0.7575 -1.0393 -0.829 1.5703 0.9478 0.8127 1.5607 2.2125 0.5516
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
KI ci: Voting(5, monthly) 0.44 0.46 0.55 0.47 0.56 0.5 0.47 0.49 0.48 0.51 0.49
Voting(10, monthly) 0.46 0.5 0.54 0.51 0.53 0.52 0.5 0.48 0.52 0.51 0.51
O O Voting(15, monthly) 0.47 0.51 0.53 0.51 0.52 0.53 0.49 0.46 0.5 0.51 0.5
Voting(20, monthly) 0.46 0.49 0.52 0.52 0.52 0.5 0.48 0.44 0.51 0.52 0.5
Voting(25, monthly) 0.48 0.48 0.52 0.5 0.53 0.54 0.5 0.45 0.52 0.51 0.5
Voting(30, monthly) 0.49 0.48 0.55 0.5 0.52 0.55 0.52 0.46 0.52 0.49 0.51
Voting( 35, monthly) 0.46 0.5 0.58 0.51 0.55 0.56 0.49 0.49 0.52 0.5 0.52
Voting(40, monthly) 0.48 0.49 0.54 0.5 0.55 0.52 0.48 0.49 0.54 0.46 0.5
Voting(45, monthly) 0.48 0.48 0.54 0.5 0.52 0.54 0.5 0.49 0.55 0.47 0.51
.
Voting(50, monthly) 0.48 0.51 0.56 0.52 0.52 0.55 0.47 0.51 0.55 0.48 0.52
Voting(5, yearly) 0.48 0.47 0.48 0.38 0.51 0.51 0.52 0.44 0.5 0.52 0.48
Voting(10, yearly) 0.48 0.49 0.48 0.42 0.52 0.51 0.56 0.43 0.5 0.5 0.49
Voting(15, yearly) 0.5 0.5 0.48 0.4 0.51 0.51 0.52 0.44 0.5 0.5 0.48
Voting(20, yearly) 0.48 0.5 0.46 0.4 0.52 0.5 0.5 0.44 0.5 0.5 0.48
Voting(25, yearly) 0.5 0.48 0.45 0.45 0.53 0.48 0.52 0.48 0.48 0.48 0.48
Voting(30, yearly) 0.49 0.48 0.44 0.44 0.53 0.5 0.52 0.53 0.49 0.49 0.49
Voting(35, yearly) 0.5 0.49 0.44 0.43 0.53 0.52 0.54 0.52 0.5 0.49 0.5
Voting(40, yearly) 0.49 0.48 0.44 0.44 0.52 0.52 0.53 0.5 0.5 0.5 0.49
Voting(45, yearly) 0.48 0.49 0.44 0.43 0.52 0.54 0.54 0.52 0.51 0.49 0.5
Voting(50, yearly) 0.48 0.5 0.44 0.42 0.5 0.54 0.54 0.5 0.51 0.49 0.49

-z
(1
 Voting among Trend-based Regression Algorithm with Trading Volume (V:W) = (2:1) : Voting(k, period)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 112 109 134 107 120 116 118 130 117 125 118.8
Voting(10, monthly) 118 107 130 113 142 108 110 128 113 127 119.6
Voting(15, monthly) 118 119 130 115 136 118 128 132 127 127 125
Voting(20, monthly) 110 121 132 115 132 124 124 118 127 127 123
Voting(25, monthly) 116 123 126 123 124 120 124 128 125 117 122.6
Voting(30, monthly) 124 121 126 115 122 122 138 132 123 119 124.2
Voting(35, monthly) 126 115 130 111 124 122 136 142 125 129 126
Voting(40, monthly) 130 115 128 113 124 128 140 142 119 123 126.2
Voting(45, monthly) 130 115 130 107 124 134 132 142 123 119 125.6
C.A3
Voting(50, monthly) 134 115 126 109 120 132 130 144 113 117 124
Voting(5, yearly) 132 135 119 92 132 141 132 113 115 110 122.1
Voting(10, yearly) 128 125 127 90 118 139 128 113 115 110 119.3
Voting(15, yearly) 127 114 117 92 122 139 130 113 117 110 118.1
Voting(20, yearly) 129 112 115 92 120 141 130 119 121 110 118.9
Voting(25, yearly) 127 113 114 90 112 132 131 117 122 113 117.1
Voting(30, yearly) 127 113 112 94 104 136 125 116 118 110 115.5
Voting(35, yearly) 127 109 114 100 112 142 125 124 125 111 118.9
Voting(40, yearly) 127 111 110 98 114 138 129 130 123 111 119.1
Voting(45, yearly) 127 111 108 100 112 138 129 144 121 111 120.1
Voting(50, yearly) 127 115 108 104 123 141 131 140 122 112 122.3
 Voting among Nearest Neighbors Algorithm: Voting(k, period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.1492 0.0582 -0.1856 -0.1264 -0.2046 0.179 0.0265 0.0451 0.0726 0.0945 0.0021
Voting(10, monthly) 0.3043 0.0192 -0.1152 -0.1807 -0.1225 0.1398 0.011 -0.0579 0.044 0.147 0.0095
Voting(15, monthly) 0.15 0.129 -0.1202 -0.1067 -0.2378 0.1941 0.0542 -0.0049 0.0616 0.0212 0.0055
Voting(20, monthly) 0.2346 0.2463 -0.1613 -0.1221 -0.2622 0.1165 -0.0083 0.0478 0.0117 0.0234 0.0004
Voting(25, monthly) 0.085 0.2158 -0.108 -0.1479 -0.2503 0.1473 -0.0326 -0.089 0.0159 -0.0326 -0.0287
oq
cj- Voting(30, monthly) 0.0678 0.273 -0.1609 -0.2457 -0.3074 0.0854 -0.0137 -0.0219 0.0549 -0.0019 -0.0411
Voting(35, monthly) 0.1484 0.3258 -0.1599 -0.1943 -0.3088 0. 1619 -0.02 -0.0795 0.0439 -0.0372 -0.0283
n, Voting(40, monthly) 0.237 0.229 -0.0134 -0.175 -0.2616 0.1161 -0.001 -0.0612 0.0472 -0.027 -0.0026
Voting(45, monthly) 0.2265 0.2566 0.0316 -0.1955 -0.2614 0.0925 -0.0626 0.013 0.048 0.0058 0.0033
Voting(50, monthly) 0.2205 0.2153 -0.1472 -0.1956 -0.2888 0.1391 0.0392 0.0387 0.0327 0.0077 -0.0154
Voting(5, yearly) 0.241 0.1953 -0.0956 -0.1021 -0.1063 0 0.0618 -0.0357 0.0259 0.1082 0.0228
Voting(10, yearly) 0 0 -0.008 -0.1169 0.0731 0.2638 0.0615 0.0045 0.0175 0.1042 0.0359
Voting(15, yearly) 0.383 0.1953 -0.0362 -0.0707 0.0008 0.2027 0.0928 -0.0219 0.0175 0.023 0.0709
Voting(20, yearly) 0.383 0.1953 -0.0595 -0.0821 0.0008 0.2638 0.0179 -0.0251 0 0.0195 0.0621
0N
co 0.0371
Voting(25, yearly) 0.241 0.1953 -0.048 -0.1013 0 0 0.0028 0.0974 0 0.0303
Voting(30, yearly) 0.241 0.1953 -0.0259 -0.1192 0 0 0.012 0.047 0.0125 0.0774 0.0393
0· Voting(35, yearly) 0 0 -0.017 -0.1263 0 0 0.0754 0.0015 0.0125 0.046 -0.0021
cD
Voting(40, yearly) 0 0 -0.0388 -0.066 -0.3052 0 0.037 0.0516 0 0.0909 -0.0294
Voting(45, yearly) 0 0 -0.0064 -0.095 -0.3052 0 0.0277 0.067 0 0.046 -0.0328
Voting(50, yearly) 0 0 -0.0171 -0.1164 -0.3052 0 0.071 0.0202 0.0125 0.046 -0.0353
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.1441 0.1016 0.1851 0.1949 0.1676 0.1425 0.0773 0.0711 0.06 0.0959 0.1325
Voting(10, monthly) 0.1126 0.1106 0.1387 0.1895 0.1861 0.1433 0.0745 0.0756 0.0631 0.1005 0.1267
Voting(15, monthly) 0.0969 0.1208 0.1689 0.1992 0.2457 0.1452 0.0669 0.0753 0.0633 0.1148 0.1418
Voting(20, monthly) 0.1054 0.1235 0.1718 0.2001 0.2484 0.1489 0.0562 0.0782 0.062 0.1229 0.1442
Voting(25, monthly) 0.107 0.1236 0.1657 0.2047 0.2443 0.1357 0.0488 0.071 0.0654 0.1195 0.1415
Voting(30, monthly) 0.0988 0.1274 0.1688 0.1891 0.2114 0.1444 0.0667 0.0686 0.0625 0.1216 0.1355
Voting(35, monthly) 0.0911 0.1228 0.1705 0.2065 0.2115 0.152 0.0472 0.063 0.0617 0.1185 0.1367
Voting(40, monthly) 0.1033 0.1177 0.1418 0.2049 0.2166 0.1458 0.0505 0.0672 0.062 0.1127 0.1336
Voting(45, monthly) 0.1079 0.1235 0.1417 0.2065 0.2133 0.1475 0.0444 0.0766 0.0611 0.113 0.1346
Voting(50, monthly) 0.1112 0.1196 0.1802 0.2065 0.2117 0.151 0.0409 0.0769 0.0599 0.1163 0.1393
Voting(5, yearly) 0.1373 0.1808 0.1206 0.1636 0.1803 0 0.0647 0.0643 0.0591 0.106 0.1218
Voting(10, yearly) 0 0 0. 1258 0.1546 0.2069 0.1711 0.0724 0.0628 0.0642 0.0993 0.1162
of: Voting(15, yearly) 0.1785 0.1808 0.1275 0.163 0.1541 0.1684 0.0628 0.0702 0.0642 0.1048 0.1354
Voting(20, yearly) 0.1785 0.1808 0.1275 0.1632 0.1541 0.1711 0.0636 0.0597 0 0.093 0.1329
Voting(25, yearly) 0.1373 0. 1808 0.1281 0.1725 0 0 0.0546 0.0709 0 0.0738 0.1054
Voting(30, yearly) 0. 1373 0. 1808 0.1261 0.1816 0 0 0.0553 0.0683 0.0678 0.0832 0.1094
Voting(35, yearly) 0 0 0.126 0.2019 0 0 0.0598 0.0801 0.0678 0.0438 0.0855
Voting(40, yearly) 0 0 0. 1227 0.2111 0.16 0 0.051 0.0729 0 0.0805 0.0998
Voting(45, yearly) 0 0 0.1224 0.2131 0.16 0 0.0501 0.0774 0 0.0438 0.0982
Voting(50, yearly) 0 0 0.1221 0.2147 0.16 0 0.0608 0.0816 0.0678 0.0438 0.1017
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Voting among Nearest Neihbors Alc orithm: Voting(k, period)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 1.0353 0.5725 -1.0024 -0.6486 -1.2211 1.2556 0.3429 0.6345 1.2102 0.9858 0.0158
Voting(10, monthly) 2.7015 0.1734 -0.8304 -0.9536 -0.6579 0.9754 0.1472 -0.7665 0.697 1.4629 0.0750
Voting(15, monthly) 1.5484 1.0674 -0.7118 -0.5357 -0.9678 1.337 0.8102 -0.0653 0.9739 0.1849 0.0388
Voting(20, monthly) 2.2258 1.9939 -0.939 -0.6101 -1.0558 0.7827 -0.147 0.611 0.1881 0.1903 0.0028
('D Voting(25, monthly) 0.7943 1.7459 -0.6516 -0.7222 -1.0247 1.0849 -0.6672 -1.253 0.244 -0.2727 -0.2028
09
Qr3j 0.6863 2.143 -0.9531 -1.2991 -1.4542 0.5916 -0.2053 -0.319 0.8779 -0.0157 -0.3033
Voting(30, monthly)
Voting(35, monthly) 1.6291 2.6526 -0.9379 -0.9411 -1.4596 1.065 -0.4243 -1.2618 0.7107 -0.3143 -0.2070
Voting(40, monthly) 2.2939 1.9461 -0.0946 -0.8538 -1.2075 0.796 -0.0205 -0.9107 0.7603 -0.2398 -0.0195
Voting(45, monthly) 2.1 2.0773 0.2233 -0.9465 -1.2253 0.6269 -1.4086 0.17 0.7852 0.0518 0.0245
Voting(50, monthly) 1.984 1.8004 -0.8171 -0.9474 -1.3641 0.9218 -0.9584 0.503 0.5452 0.0658 -0.1106
Voting(5, yearly) 1.7551 1.0802 -0.7924 -0.6245 -0.5897 NaN 0.9554 -0.5556 0.4378 1.0208 0.1872
0
cD Voting(10, yearly) NaN NaN -0.0636 -0.756 0.3535 1.5422 0.8492 0.0718 0.2719 1.0494 0.3090
©
Cr Voting(15, yearly) 2.1456 1.0802 -0.2838 -0.4337 0.0049 1.2038 1.4769 -0.3114 0.2719 0.2194 0.5236
Voting(20, yearly) 2.1456 1.0802 -0.4661 -0.5032 0.0049 1.5422 0.281 -0.4214 NaN 0.2093 0.4673
Voting(25, yearly) 1.7551 1.0802 -0.3747 -0.587 NaN NaN 0.052 1.3747 NaN 0.41 0.3520
Voting(30, yearly) 1.7551 1.0802 -0.2052 -0.6564 NaN NaN 0.216 0.6876 0.1838 0.9302 0.3592
Voting(35, yearly) NaN NaN -0.1346 -0.6255 NaN NaN 1.2616 0.019 0.1838 1.0495 -0.0246
0 Voting(40, yearly) NaN NaN -0.3161 -0.3128 -1.9072 NaN 0.7269 0.7069 NaN 1.1291 -0.2946
'-1
co Voting(45, yearly) NaN NaN -0.0521 -0.4459 -1.9072 NaN 0.5525 0.866 NaN 1.0495 -0.3340
to D
Voting(50, yearly) NaN NaN -0.1396 -0.5423 -1.9072 NaN 1.1682 0.2471 0.1838 1.0495 -0.3471
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.47 0.39 0.63 0.88 0.58 0.61 0.46 0.52 0.35 0.39 0.53
Voting(10, monthly) 0.39 0.38 0.47 0.79 0.63 0.64 0.43 0.59 0.37 0.46 0.52
Voting(15, monthly) 0.29 0.48 0.65 0.83 0.85 0.66 0.44 0.56 0.4 0.39 0.56
Voting(20, monthly) 0.35 0.49 0.71 0.86 0.88 0.62 0.28 0.54 0.4 0.52 0.56
O Voting(25, monthly) 0.35 0.49 0.7 0.89 0.8 0.54 0.19 0.44 0.4 0.42 0.52
Voting(30, monthly) 0.29 0.5 0.69 0.73 0.63 0.62 0.38 0.38 0.41 0.5 0.51
Voting(35, monthly) 0.23 0.5 0.6 0.92 0.65 0.67 0.18 0.33 0.37 0.4 0.49
Voting(40, monthly) 0.32 0.46 0.39 0.9 0.65 0.6 0.19 0.43 0.38 0.36 0.47
0 Voting(45, monthly) 0.32 0.5 0.39 0.92 0.66 0.62 0.18 0.53 0.37 0.37 0.49
Voting(50, monthly) 0.33 0.48 0.72 0.93 0.69 0.65 0.16 0.53 0.35 0.46 0.53
Voting(5, yearly) 0.33 1 0.44 0.56 0.52 0 0.38 0.4 0.36 0.48 0.45
Voting(10, yearly) 0 0 0.47 0.5 0.45 1 0.39 0.41 0.4 0.38 0.4
Voting(15, yearly) 0.92 1 0.47 0.58 0.33 0.91 0.33 0.47 0.4 0.42 0.58
Voting(20, yearly) 0.92 1 0.47 0.6 0.33 1 0.34 0.36 0 0.31 0.53
0C Voting(25, yearly) 0.33 1 0.47 0.61 0 0 0.25 0.44 0 0.27 0.34
Voting(30, yearly) 0.33 1 0.46 0.71 0 0 0.25 0.44 0.42 0.33 0.4
Voting(35, yearly) 0 0 0.47 0.85 0 0 0.36 0.59 0.42 0.13 0.28
Voting(40, yearly) 0 0 0.46 0.94 0.55 0 0.23 0.47 0 0.32 0.3
Voting(45, yearly) 0 0 0.46 0.96 0.55 0 0.23 0.54 0 0.13 0.29
Voting(50, yearly) 0 0 0.45 0.98 0.55 0 0.37 0.63 0.42 0.13 0.35
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Table B.46: Performance Summary of Voting among Nearest Neighbors Algorithm
Strategies (Numbers of Trading)
246
 Voting among Nearest Neighbors Algorithm with Trading Volume (m, I) = (1:1) Voting(k, period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.0592 -0.0385 0.013 0.0229 -0.0987 -0.0562 -0.0098 0.0469 0.1191 0.0152 0.0056
Voting(10, monthly) 0.0309 0.0178 -0.0001 0.0107 -0.1202 -0.0988 0.0333 0.0043 0.145 -0.0493 -0.0051
Voting(15, monthly) 0.1006 0.1735 -0.0436 0.0891 -0.0963 -0.0529 0.0554 0.0136 0.1555 -0.0338 0.0324
Voting(20, monthly) -0.0831 0.0454 -0.0998 0.0237 -0.0234 -0.0864 0.0672 -0.0176 0.1053 -0.0085 -0.0099
Voting(25 , monthly) 0.0741 -0.008 -0.0074 -0.0291 -0.1053 -0.012 0.0625 -0.0221 0.0784 -0.0122 0.0005
Voting(30, monthly) 0.1245 0.0416 -0.0352 0.0127 -0.0041 0.0027 0.0603 -0.0274 0.0982 -0.0435 0.0216
Voting(35, monthly) 0.096 0.0491 0.0664 -0.051 -0.0144 0.0165 0.0738 -0.0218 0.094 -0.0406 0.0254
Voting(40, monthly) -0.0055 0.0631 0.0272 -0.0063 -0.0659 0.0139 0.0622 -0.0067 0.0882 -0.0524 0.0107
Voting(45, monthly) 0.0117 0.1125 0.0248 0.0351 -0.0382 0.0139 0.0888 -0.0259 0.1053 0.0069 0.0323
Voting(50, monthly) 0.0622 0.0254 0.0012 0.047 -0.0403 -0.0449 0.0886 -0.0265 0.1207 0.0071 0.0227
Voting(5, yearly) 0 0.0775 -0.0598 -0.1043 -0.2089 0.1346 0.0096 -0.0429 0.0817 -0.0017 -0.0161
Voting(10, yearly) 0 0.0471 0.031 -0.0538 -0.2043 0.1138 0.0546 -0.0308 0.0932 -0.0006 0.0011
Voting(15, yearly) 0 0.0699 0.0664 -0.0362 -0.2043 0.1435 0.0223 0.0149 0.0812 0.0486 0.0164
Voting(20, yearly) 0 0.1057 -0.1437 -0.0503 -0.2044 0.1724 0.0546 -0.0031 0.102 0.023 -0.0006
Voting(25, yearly) 0 0.1634 -0.1022 -0.0441 -0.191 0.1484 0.0119 0.0085 0.1246 0.0364 0.0099
Voting(30, yearly) 0 0.1145 -0.0616 -0.05 -0.1671 0.1003 0.0567 0.0321 0.1137 0.0396 0.014
Voting(35, yearly) 0 0.0705 -0.0178 -0.0712 -0.2125 0.1481 0.0684 0.0146 0.0469 0.0446 0.0046
Voting(40, yearly) 0 0.2506 -0.0539 -0.0287 -0.1652 0.197 0.0352 0.0068 0.0397 0.0289 0.025
Voting(45, yearly) 0 0.1655 -0.11 0.0064 -0.2085 0.1205 0.0457 0.0225 0.0482 0.0359 0.0073
Voting(50, yearly) 0 0 -0.0611 0.0078 -0.2016 0.1442 0.0537 0.0152 0.0362 0.041 -0.0002
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.1318 0.1198 0.1508 0.154 0.185 0.1296 0.0798 0.0745 0.0766 0.0894 0.1245
Voting(10, monthly) 0.1467 0.1146 0.1494 0.1618 0.1811 0.129 0.0827 0.0732 0.0836 0.0996 0.1272
Voting(15, monthly) 0.1253 0.1176 0.1426 0.1702 0.1819 0.1253 0.0822 0.0709 0.0786 0.0984 0.1246
Voting(20, monthly) 0.1228 0.122 0.1647 0.1717 0.1777 0.1322 0.0838 0.07 0.0809 0.0945 0.1277
Voting(25, monthly) 0.13 0.1206 0.1495 0.1618 0.1833 0.1312 0.0836 0.0713 0.0835 0.0898 0.1256
Voting(30, monthly) 0.1349 0.1178 0.1417 0.1627 0.1901 0.1305 0.0819 0.071 0.0839 0.0973 0.1265
Voting(35, monthly) 0.1302 0.1198 0.1468 0.1545 0.1929 0.1297 0.0783 0.0701 0.0822 0.1019 0.1261
$-
F-,
c-
C
D
C-h Voting(40, monthly) 0.121 0.1163 0.1529 0.1531 0.1813 0.1303 0.0808 0.0703 0.0833 0.0939 0.1233
p Voting(45, monthly) 0.1193 0.1195 0.152 0.1545 0.1729 0.1301 0.0754 0.0745 0.0793 0.0987 0.1223
Voting(50, monthly) 0.1163 0.1197 0.153 0.1541 0.1674 0.131 0.0752 0.0748 0.0784 0.0981 0.1213
Voting(5, yearly) 0 0.1191 0.1656 0.1577 0.1667 0.1265 0.0596 0.0633 0.0753 0.0568 0.1126
Voting(10, yearly) 0 0.122 0.1633 0.1639 0.1668 0.1239 0.0698 0.0612 0.0775 0.0276 0.1127
Voting(15, yearly) 0 0.1206 0.1616 0.165 0.1668 0.1187 0.0709 0.0655 0.0763 0.0613 0.1135
Voting(20, yearly) 0 0.1233 0.1653 0.1652 0.1668 0.1191 0.0754 0.0647 0.0769 0.0655 0.1149
Voting(25, yearly) 0 0.1267 0.1581 0.1651 0.1644 0.1191 0.0781 0.0644 0.0783 0.0512 0.1134
Voting(30, yearly) 0 0.1232 0.1626 0.1654 0.1678 0.1197 0.0742 0.0643 0.0788 0.0741 0.1152
Voting(35, yearly) 0 0.1249 0.1615 0.1652 0.1727 0.1261 0.0724 0.0663 0.075 0.065 0.1158
Voting(40, yearly) 0 0.1328 0.162 0.1693 0.1663 0.1277 0.0755 0.0653 0.075 0.0772 0.1175
Voting(45, yearly) 0 0.1231 0.1571 0.1723 0.1677 0.1205 0.0768 0.0644 0.0753 0.0731 0.1154
Voting(50, yearly) 0 0 0.1583 0.1733 0.1724 0.1195 0.0756 0.0648 0.0736 0.0739 0.1095
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Voting among Nearest Neighbors Algorithm with Trading Volume (m, ) = (1:1) : Voting(k, period)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.4493 -0.3211 0.0865 0.1484 -0.5334 -0.4334 -0.1228 0.63 1.5547 0.1703 0.0450
Voting(10, monthly) 0.2104 0.1552 -0.001 0.0664 -0.6636 -0.7658 0.4029 0.0586 1.734 -0.4953 -0.0401
Voting(15, monthly) 0.8032 1.4747 -0.3055 0.5235 -0.5294 -0.4224 0.6744 0.1922 1.9772 -0.3439 0.2600
Voting(20, monthly) -0.6773 0.3721 -0.6059 0.138 -0.1319 -0.6532 0.8023 -0.2519 1.301 -0.09 -0.0775
Voting(25, monthly) 0.5699 -0.0663 -0.0498 -0.1799 -0.5746 -0.0912 0.7475 -0.3096 0.9389 -0.1358 0.0040
Voting(30, monthly) 0.9225 0.3528 -0.2482 0.0784 -0.0217 0.0209 0.7368 -0.3858 1.1702 -0.4471 0.1708
Voting(35, monthly) 0.7369 0.4101 0.4524 -0.33 -0.0749 0.127 0.9422 -0.3113 1.1441 -0.3988 0.2014
Voting(40, monthly) -0.0457 0.542 0.1782 -0.0413 -0.3633 0.1067 0.7694 -0.0954 1.0596 -0.5583 0.0868
•5 Voting(45, monthly) 0.0985 0.9416 0.1631 0.2272 -0.2208 0.107 1.1776 -0.3477 1.3282 0.0699 0.2641
Voting(50, monthly) 0.5348 0.2122 0.008 0.3048 -0.2406 -0.3429 1.1783 -0.3545 1.5406 0.0729 0.1871
Voting(5 , yearly) NaN 0.6502 -0.361 -0.6609 -1.2529 1.0635 0.1605 -0.6777 1.0853 -0.0295 -0.1430
Voting(10, yearly) NaN 0.3863 0.19 -0.3281 -1.2249 0.9179 0.7829 -0.5043 1.2036 -0.0212 0.0098
Voting(15, yearly) NaN 0.5793 0.411 -0.2192 -1.2249 1.2088 0.3144 0.2278 1.0643 0.7931 0.1445
m
co 0.3503 -0.0052
Voting(20, yearly) NaN 0.8568 -0.8697 -0.3044 -1.2251 1.4475 0.7241 -0.0482 1.3268
Voting(25, yearly) NaN 1.2895 -0.6465 -0.2668 -1.1616 1.246 0.1529 0.1315 1.5908 0.7118 0.0873
Voting(30, yearly) NaN 0.9297 -0.3791 -0.3026 -0.9957 0.8376 0.7639 0.4988 1.4424 0.5344 0.1215
Voting(35, yearly) NaN 0.5647 -0.11 -0.4311 -1.2305 1.175 0.9442 0.22 0.6251 0.6863 0.0397
Voting(40, yearly) NaN 1.887 -0.333 -0.1694 -0.9933 1.5427 0.4657 0.104 0.5286 0.3739 0.2128
Voting(45, yearly) NaN 1.3445 -0.7002 0.0373 -1.2434 1.0002 0.595 0.3502 0.6398 0.4907 0.0633
(o Voting(50, yearly) NaN NaN -0.3862 0.0451 -1.1691 1.2061 0.71 0.2349 0.4926 0.5549 -0.0018
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.48 0.43 0.53 0.43 0.56 0.51 0.5 0.5 0.48 0.4 0.48
Voting(10, monthly) 0.42 0.43 0.53 0.55 0.57 0.52 0.52 0.51 0.64 0.44 0.51
Voting(15, monthly) 0.45 0.42 0.5 0.6 0.6 0.5 0.5 0.54 0.51 0.46 0.51
Voting(20, monthly) 0.37 0.45 0.5 0.6 0.58 0.52 0.5 0.52 0.52 0.44 0.5
#3
b Voting(25, monthly) 0.38 0.46 0.48 0.55 0.56 0.48 0.5 0.56 0.57 0.43 0.5
0
cjt
(I 0.48 0.53 0.56 0.41 0.49
Voting(30, monthly) 0.39 0.43 0.47 0.55 0.57 0.51
Voting(35, monthly) 0.36 0.46 0.48 0.48 0.58 0.5 0.44 0.53 0.51 0.41 0.48
0 Voting(40, monthly) 0.32 0.45 0.49 0.43 0.56 0.5 0.46 0.55 0.56 0.39 0.47
Voting(45, monthly) 0.31 0.44 0.51 0.46 0.56 0.49 0.44 0.61 0.54 0.41 0.48
Voting(50, monthly) 0.29 0.44 0.5 0.46 0.55 0.52 0.44 0.62 0.56 0.38 0.47
Voting(5, yearly) 0 0.45 0.5 0.54 0.45 0.53 0.32 0.46 0.47 0.13 0.38
Voting(10, yearly) 0 0.44 0.49 0.55 0.45 0.47 0.42 0.43 0.45 0.03 0.37
Voting(15, yearly) 0 0.47 0.51 0.57 0.45 0.43 0.42 0.48 0.45 0.12 0.39
Voting(20, yearly) 0 0.46 0.52 0.57 0.45 0.4 0.46 0.47 0.46 0.13 0.39
Voting(25, yearly) 0 0.48 0.52 0.56 0.43 0.41 0.45 0.46 0.52 0.1 0.39
Voting(30, yearly) 0 0.46 0.52 0.58 0.49 0.42 0.44 0.47 0.54 0.15 0.41
Voting(35, yearly) 0 0.45 0.48 0.58 0.59 0.42 0.43 0.49 0.49 0.13 0.41
Voting(40, yearly) 0 0.53 0.5 0.59 0.52 0.45 0.44 0.48 0.5 0.17 0.42
Voting(45, yearly) 0 0.47 0.48 0.6 0.54 0.41 0.43 0.47 0.49 0.15 0.41
Voting(50, yearly) 0 0 . 0.48 0.58 0.58 0.4 0.43 0.48 0.48 0.15 0.36
 Voting among Nearest Neighbors Algorithm with Trading Volume (m, ) = (1:1) : Voting(k, period)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 79 101 123 88 109 110 115 92 91 104 101.2
Voting(10, monthly) 91 102 112 76 103 102 117 86 77 104 97
Voting(15, monthly) 83 98 124 82 115 112 127 104 93 106 104.4
Voting(20, monthly) 82 105 124 86 105 108 131 100 91 114 104.6
Voting(25, monthly) 73 112 116 90 103 104 127 110 89 102 102.6
Voting(30, monthly) 81 116 118 82 111 106 115 116 89 98 103.2
Voting(35, monthly) 83 118 124 84 109 112 103 112 87 112 104.4
Voting(40, monthly) 81 108 120 81 114 110 105 102 89 112 102.2
Voting(45, monthly) 79 114 124 93 110 116 105 100 103 112 105.6
Voting(50, monthly) 79 120 118 97 108 112 105 98 101 114 105.2
Voting(5, yearly) 0 93 90 115 110 58 53 109 66 12 70.6
Voting(10, yearly) 0 91 104 112 111 62 100 108 70 8 76.6
Voting(15, yearly) 0 101 116 116 111 72 98 106 80 10 81
Voting(20, yearly) 0 101 98 116 109 72 108 102 82 14 80.2
Voting(25, yearly) 0 101 102 116 103 80 102 108 92 18 82.2
Voting(30, yearly) 0 95 110 112 69 78 110 110 90 12 78.6
Voting(35, yearly) 0 87 114 110 36 89 108 120 94 12 77
Voting(40, yearly) 0 73 118 108 38 91 102 120 100 14 76.4
Voting(45, yearly) 0 59 116 112 63 88 100 114 102 12 76.6
Voting(50, yearly) 0 0 121 110 71 90 106 116 104 12 73
 Voting among Nearest Neighbors Algorithm with Trading Volume (m, I) = (2:1) : Voting(k, period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.0176 0.0364 -0.2633 -0.0257 -0.139 0.1763 -0.0326 0.0447 0.0444 -0.0419 -0.0251
Voting(10, monthly) 0.0194 0.0194 -0.3115 -0.0639 -0.0723 0.1089 0.0261 0.0536 0.0427 -0.0854 -0.0336
Voting(15, monthly) -0.0019 0.0283 -0.2751 -0.037 -0.1592 0.1629 0.0366 0.0512 0.0232 -0.0254 -0.0269
Voting(20, monthly) -0.0346 -0.0146 -0.2961 0.0382 -0.2369 0.2438 -0.0286 0.0968 0.0305 -0.0552 -0.0372
Voting(25, monthly) 0.0091 -0.0856 -0.3253 -0.0809 -0.2058 0.2737 -0.0423 0.111 0.0515 -0.0306 -0.0455
Voting(30, monthly) 0.0811 -0.0498 -0.3235 -0.0113 -0.3012 0.1765 -0.021 0.0633 0.0637 -0.0226 -0.048
Voting(35, monthly) 0.1264 0.0093 -0.3125 0.0992 -0.1518 0.2068 -0.0044 0.0859 0.0933 0.0637 0.0101
Voting(40, monthly) 0.1601 0.0165 -0.209 0.0627 -0.1957 0.1532 0.0272 0.084 0.0855 0.0567 0.0162
Voting(45, monthly) 0.1405 -0.022 -0.219 -0.0546 -0.2161 0.1527 0.0286 0.0488 0.0679 0.0001 -0.0153
Voting(50, monthly) 0.0692 -0.0303 -0.2248 -0.0192 -0.1494 0.0973 0.0235 0.0405 0.0856 -0.0197 -0.018
Voting(5, yearly) 0 0.0102 -0.0457 -0.0275 -0.1192 0.1913 0.0825 -0.0637 0.1469 0.026 0.0161
N -0.0056 -0.0494 -0.02 -0.2494 0.1728 0.0006 -0.0744 0.1469 0.0434 -0.0101
cD Voting(10, yearly) 0
Voting(15, yearly) 0.2667 -0.0094 0.0398 -0.0659 -0.2217 0.1102 0.0018 -0.059 0.1322 0.0566 0.0173
Voting(20, yearly) 0.2667 0.0523 -0.0317 -0.0368 -0.2803 0.2035 0.0278 -0.046 0.1481 0.0928 0.0285
Voting(25, yearly) 0.2667 -0.041 -0.001 -0.0067 -0.2517 0.1188 0.0229 -0.0499 0.1634 0.0638 0.0196
Voting(30, yearly) 0.2667 0.0026 -0.0453 -0.0819 -0.2286 0.2098 0.0309 -0.0417 0.1668 0.0795 0.026
Voting(35, yearly) 0.2667 -0.0179 -0.0176 -0.0617 -0.1996 0.2379 0.049 -0.0447 0.1811 0.0655 0.0366
Voting(40, yearly) 0 -0.045 -0.0464 -0.056 -0.2417 0.2181 0.0371 0.0009 0.1757 0.0814 0.0047
Voting(45, yearly) 0 -0.0394 -0.0958 -0.0493 -0.2586 0.2359 0.0491 -0.0329 0.1926 0.0292 -0.0059
Voting(50, yearly) 0 -0.0611 -0.1002 -0.0417 -0.2474 0.2221 0.0162 -0.0283 0.1809 0.0718 -0.0072
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
CD
c-n
N Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.1467 0.1157 0.1473 0.1454 0.1973 0.1058 0.0682 0.0746 0.0811 0.1061 0.1249
Voting(10, monthly) 0.1522 0.1185 0.1593 0.1452 0.1972 0.1081 0.0694 0.0742 0.0783 0.1192 0.1284
Voting(15, monthly) 0.1497 0.1292 0.1621 0.1441 0.1887 0.1068 0.0682 0.0685 0.069 0.1079 0.1261
Voting(20, monthly) 0.1586 0.1246 0.167 0.1435 0.185 0.1085 0.0673 0.0697 0.0697 0.1151 0.1275
Voting(25, monthly) 0.1564 0.1178 0.1551 0.1757 0.1808 0.1165 0.0661 0.0677 0.0698 0.1159 0.1291
Voting(30, monthly) 0.1625 0.115 0.1627 0.1605 0.1894 0.1131 0.0672 0.071 0.0716 0.1127 0.1296
Voting(35, monthly) 0.1621 0.1152 0.1566 0.1376 0.1964 0.1117 0.0674 0.0699 0.0738 0.1073 0.1267
CD
03 Voting(40, monthly) 0.1637 0.1153 0.1626 0.1308 0.1911 0.1109 0.0702 0.0717 0.0739 0.1022 0.1259
CD
02 Voting(45, monthly) 0.1634 0.1142 0.1567 0.1571 0.1913 0.1143 0.0695 0.0733 0.0726 0.1079 0.1287
Voting(50, monthly) 0.1595 0.1115 0.1527 0.159 0.1944 0.1106 0.0683 0.0699 0.0737 0.1113 0.128
Voting(5, yearly) 0 0.1267 0.162 0.1751 0.1926 0.1326 0.0686 0.0647 0.07 0.1196 0.1248
Voting(10, yearly) 0 0.1257 0.1382 0.1744 0.2049 0.1322 0.0706 0.0649 0.07 0.1228 0.1241
Voting(15, yearly) 0.2031 0.1249 0.1503 0.1747 0.2008 0.1289 0.0668 0.0663 0.0692 0.1152 0.1392
Voting(20, yearly) 0.2031 0.1294 0.1447 0.1742 0.1972 0.1333 0.069 0.0638 0.0666 0.1105 0.1384
Voting(25, yearly) 0.2031 0.1256 0.1478 0.1717 0.1976 0.1275 0.0718 0.0643 0.0656 0.1105 0.1377
Voting(30, yearly) 0.2031 0.1288 0.1466 0.1768 0.1956 0.1281 0.0787 0.0639 0.066 0.1161 0.1391
Voting(35, yearly) 0.2031 0.1305 0.1411 0.178 0.1902 0.1276 0.0774 0.0645 0.0674 0.108 0.1374
Voting(40, yearly) 0 0.1326 0.1425 0.1779 0.1926 0.1286 0.0775 0.0639 0.0682 0.1154 0.123
Voting(45, yearly) 0 0.1315 0.1362 0.178 0.1916 0.132 0.077 0.0668 0.0692 0.1127 0.1223
Voting(50, yearly) 0 0.1328 0.1366 0.1784 0.1899 0.1329 0.0783 0.0666 0.0672 0.1148 0.1225
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 O'
Voting among Nearest Neighbors Algorithm with Trading Volume (m, 1)= (2:1) : Voting(k, period)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
(D Voting(S, monthly) 0.1202 0.3148 -1.7881 -0.177 -0.7043 1.6669 -0.478 0.5987 0.5477 -0.3952 -0.2010
Voting(10, monthly) 0.1277 0.1637 -1.9552 -0.4402 -0.3667 1.0071 0.3765 0.7226 0.546 -0.7165 -0.2617
Voting(15, monthly) -0.0129 0.2188 -1.6976 -0.2569 -0.8438 1.5261 0.5364 0.7481 0.3363 -0.2358 -0.2133
O2. C
O -0.4251 1.3889 0.4372 -0.4791 -0.2918
CD CD Voting(20, monthly) -0.218 -0.1174 -1.7737 0.2663 -1.2806 2.2465
Voting(25, monthly) 0.0583 -0.7269 -2.0971 -0.4604 -1.1387 2.3493 -0.6398 1.6402 0.7378 -0.2641 -0.3524
Voting(30, monthly) 0.4988 -0.4332 -1.9878 -0.0702 -1.5897 1.5606 -0.3118 0.8913 0.8895 -0.2001 -0.3704
0 Voting(35, monthly) 0.7797 0.0809 -1.995 0.7211 -0.7728 1.8512 -0.0656 1.229 1.264 0.5932 0.0797
Voting(40, monthly) 0.9775 0.1429 -1.2856 0.4795 -1.0243 1.3817 0.3876 1.1715 1.1568 0.5544 0.1287
Voting(45, monthly) 0.8597 -0.1928 -1.3977 -0.3474 -1.1299 1.3365 0.4117 0.6655 0.9351 0.0011 -0.1189
Voting(50, monthly) 0.434 -0.2714 -1.4723 -0.1206 -0.7682 0.8795 0.3439 0.5795 1.1606 -0.1775 -0.1406
c nR(-D Voting(5, yearly) NaN 0.0804 -0.2819 -0.1572 -0.6188 1.4429 1.2032 -0.9848 2.099 0.2171 0.1290
Voting(10, yearly) NaN -0.0443 -0.3576 -0.1144 -1.217 1.3072 0.0079 -1.1458 2.099 0.3529 -0.0814
Voting(15, yearly) 1.3129 -0.0753 0.2646 -0.377 -1.1042 0.8545 0.0266 -0.8894 1.9103 0.4914 0.1243
0 (D Voting(20, yearly) 1.3129 0.4042 -0.2191 -0.2115 -1.4211 1.5268 0.4035 -0.7207 2.2232 0.8401 0.2059
Voting(25, yearly) 1.3129 -0.3267 -0.0067 -0.039 -1.2734 0.9315 0.3194 -0.7751 2.4891 0.5773 0.1423
Voting(30, yearly) 1.3129 0.0202 -0.3093 -0.4632 -1.1686 1.6373 0.3929 -0.653 2.5291 0.6849 0.1869
Voting(35, yearly) 1.3129 -0.1373 -0.1249 -0.3465 -1.0492 1.8644 0.6332 -0.6938 2.6878 0.6065 0.2664
Voting(40, yearly) NaN -0.3394 -0.3254 -0.3147 -1.2548 1.6951 0.4788 0.0135 2.5739 0.7049 0.0382
Voting(45, yearly) NaN -0.3 -0.7035 -0.277 -1.3494 1.7872 0.6378 -0.4921 2.7845 0.2589 -0.0482
CA Voting(50, yearly) NaN -0.4596 -0.7334 -0.234 -1.3029 1.671 0.2067 -0.4251 2.691 0.625 -0.0588
03 C) Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
C) 0 Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Cd
P Voting(5, monthly) 0.47 0.39 0.46 0.52 0.56 0.48 0.4 0.47 0.57 0.4 0.47
Voting(10, monthly) 0.59 0.43 0.48 0.5 0.53 0.46 0.44 0.48 0.54 0.47 0.49
(D Voting(15, monthly) 0.56 0.46 0.52 0.5 0.54 0.45 0.44 0.45 0.5 0.46 0.49
FD 0 ,
IQ 6
Voting(20, monthly) 0.59 0.45 0.52 0.48 0.54 0.48 0.42 0.48 0.5 0.5 0.5
Voting(25, monthly) 0.55 0.43 0.47 0.53 0.51 0.52 0.41 0.48 0.51 0.49 0.49
monthly) 0.61 0.44 0.49 0.48 0.53 0.48 0.44 0.51 0.51 0.49 0.5
aqas~ Voting(30,
Voting(35, monthly) 0.62 0.44 0.48 0.42 0.52 0.49 0.44 0.48 0.5 0.49 0.49
0·~0 Voting(40, monthly) 0.63 0.45 0.49 0.41 0.59 0.51 0.45 0.51 0.52 0.48 0.5
Voting(45, monthly) 0.64 0.45 0.48 0.49 0.58 0.5 0.46 0.52 0.51 0.49 0.51
Mo~ Voting(50, monthly)
Voting(5, yearly)
0.58
0
0.43
0.49
0.45
0.51
0.49
0.66
0.6
0.51
0.48
0.52
0.43
0.4
0.52
0.46
0.5
0.47
0.52
0.5
0.5
0.45
Voting(10, yearly) 0 0.49 0.48 0.6 0.58 0.54 0.4 0.47 0.47 0.52 0.45
Voting(15, yearly) 1 0.48 0.49 0.62 0.57 0.54 0.36 0.48 0.45 0.49 0.55
Voting(20, yearly) 1 0.45 0.49 0.62 0.54 0.55 0.4 0.45 0.43 0.48 0.54
Voting(25, yearly) 1 0.49 0.48 0.59 0.56 0.53 0.4 0.46 0.42 0.5 0.54
0t0 Voting(30, yearly)
Voting(35, yearly)
1
1
0.49
0.49
0.48
0.48
0.6
0.62
0.54
0.55
0.54
0.54
0.44
0.44
0.45
0.47
0.44
0.44
0.51
0.49
0.55
0.55
Voting(40, yearly) 0 0.5 0.49 0.62 0.57 0.54 0.44 0.46 0.45 0.49 0.46
Voting(45, yearly) 0 0.5 0.45 0.62 0.56 0.54 0.44 0.48 0.46 0.5 0.46
Voting(50, yearly) 0 0.5 0.45 0.63 0.56 0.54 0.45 0.48 0.45 0.51 0.46
 Voting among Nearest Neighbors Algorithm with Trading Volume (m, 1) = (2:1) : Voting(k, period)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 102 96 92 95 93 91 115 93 99 101 97.7
Voting( 10, monthly) 84 109 107 103 95 89 105 101 95 115 100.3
Voting(15, monthly) 86 108 107 114 91 93 111 100 110 124 104.4
Voting(20, monthly) 88 106 105 112 101 117 113 94 102 124 106.2
Voting(25, monthly) 88 110 103 106 95 117 115 102 108 132 107.6
Voting(30, monthly) 88 100 105 102 89 117 121 106 110 130 106.8
Voting(35, monthly) 84 96 105 98 93 121 117 108 114 126 106.2
Voting(40, monthly) 90 100 109 98 93 121 119 110 116 118 107.4
Voting(45, monthly) 88 94 111 96 101 115 119 116 114 130 108.4
Voting(50, monthly) 86 102 107 94 101 119 121 116 114 122 108.2
0
Voting(5, yeary) 0 97 104 68 74 111 57 87 114 105 81.7
Q9
Voting(10, yearly) 0 95 126 78 80 107 101 85 114 115 90.1
Voting(15, yearly) 0 96 120 82 93 104 99 87 110 117 90.8
Voting(20, yearly) 0 98 124 84 90 103 102 90 108 111 91
Voting(25, yearly) 0 108 126 92 99 100 112 92 110 113 95.2
Voting(30, yearly) 0 108 124 94 100 99 124 92 110 123 97.4
Voting(35, yearly) 0 108 132 94 94 96 119 96 110 125 97.4
Voting(40, yearly) 0 107 122 94 84 96 125 96 112 121 95.7
Voting(45, yearly) 0 111 116 98 74 98 127 98 112 119 95.3
Voting(50, yearly) 0 105 112 98 80 98 137 98 112 125 96.5
 Voting among All Strategies Voting(k, period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.1424 0.0689 -0.2431 0.0112 -0.0768 0.0751 0.0666 0.0614 0.097 0.0523 0.0194
Voting(10, monthly) 0.0342 0.1146 -0.1369 -0.0149 -0.1102 0.0764 0.0264 0.0232 0.039 0.0408 0.0064
Voting(15, monthly) -0.0598 0.2426 -0.1812 -0.0665 -0.1583 0.0882 0.0115 0.0354 0.0743 0.0559 -0.0029
Voting(20, monthly) -0.1112 0.2365 -0.2801 -0.0082 -0.1544 0.0669 0.0291 -0.006 0.0859 0.0141 -0.0224
Voting(25, monthly) -0.0857 0.2292 -0.3351 0.0035 -0.1737 -0.0733 0.0076 -0.0344 0.0909 -0.0123 -0.0495
Voting(30, monthly) 0.0344 0.1649 -0.2379 -0.0534 -0.2477 -0.048 -0.0216 0.0003 0.0707 0.0366 -0.0384
Voting(35, monthly) 0.0137 0.1526 -0.1996 0.0146 -0.2657 0.0326 0.0212 0.0552 0.0197 0.0583 -0.0177
Voting(40, monthly) 0.1674 0.2049 -0.2369 -0.0232 -0.1242 0.0152 0.0197 0.0419 -0.0055 0.11 0.009
Voting(45, monthly) 0.2011 0.1794 -0.1783 -0.0378 -0.1606 0.0204 0.0054 0.0184 -0.01 0.0453 0.0016
Voting(50, monthly) 0.0922 0.1539 -0.1167 0.037 -0.1891 0.0674 -0.012 0.0304 -0.0146 0.046 0.0048
Voting(5, yearly) 0.2152 0.0128 -0.0869 -0.0562 -0.2043 0.0167 0.0687 -0.0599 0.1363 0.2006 0.0163
Voting(10, yearly) 0.1925 0.0707 -0.0796 -0.0432 -0.2043 0.0145 0.0695 -0.0905 0.1406 0.2363 0.0222
Voting(15, yearly) 0.2334 0.0742 -0.0435 -0.043 -0.2276 0.0145 0.0572 -0.0821 0.1416 0.1928 0.023
Voting(20, yearly) 0.1757 0 -0.0644 -0.0392 -0.1995 0.0145 0.0353 -0.0803 0.1284 0.2001 0.0102
Voting(25, yearly) 0.1812 0.1953 -0.0464 -0.0615 -0.2057 0.0107 0.0534 -0.0616 0.1538 0.158 0.0297
Voting(30, yearly) 0.205 0.041 -0.0385 -0.0982 -0.1334 0.116 0.0397 -0.0727 0.1355 0.2011 0.033
Voting(35, yearly) 0.1733 0.0641 -0.0417 -0.0636 -0.1746 0.1048 0.034 -0.0609 0.1332 0.1743 0.0282
Voting(40, yearly) 0.1733 0.0555 -0.0316 -0.082 -0.146 0.0525 0.0497 -0.0676 0.1588 0.1892 0.0293
Voting(45, yearly) 0.2087 -0.0238 -0.0267 -0.0796 -0.1422 0.0406 0.0576 -0.0675 0.1448 0.1943 0.0244
Voting(50, yearly) 0.223 0.0008 -0.0549 -0.0742 -0.1806 0.1114 0.0624 -0.0444 0.1759 0.1962 0.0337
C-71 Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
CA Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.1445 0.1255 0.1401 0.1429 0.2068 0.1091 0.0787 0.0732 0.0777 0.1084 0.1268
ON
CD Voting(10, monthly) 0.1308 0.1241 0.1431 0.1353 0.2077 0.1214 0.0759 0.075 0.0763 0.1056 0.1255
Voting(15, monthly) 0.1406 0.1288 0.1377 0.1443 0.2212 0.1205 0.0751 0.0728 0.0762 0.1044 0.1293
Voting(20, monthly) 0.1434 0.1277 0.1586 0.1467 0.2023 0.1212 0.0787 0.075 0.0769 0.108 0.1298
cD
Voting(25, monthly) 0.1443 0.1367 0.1665 0.145 0.2084 0.1163 0.0772 0.0747 0.0783 0.1037 0.1318
cj=
Voting(30, monthly) 0.1383 0.1313 0.1405 0.1291 0.2074 0.1177 0.0731 0.0751 0.0773 0.1035 0.1254
Voting(35, monthly) 0.1393 0.1303 0.1386 0.1366 0.2013 0.1151 0.0667 0.0735 0.0771 0.1071 0.1246
Voting(40, monthly) 0.1572 0.1335 0.1417 0.131 0.1988 0.1145 0.0672 0.074 0.0786 0.0985 0.1258
Voting(45, monthly) 0.1548 0.1272 0.1351 0.1344 0.2016 0.1139 0.0706 0.0708 0.079 0.102 0.1252
Voting(50, monthly) 0.1537 0.1268 0.1456 0.1433 0.1895 0.1152 0.0688 0.0719 0.0772 0.1031 0.1254
Voting(5, yearly) 0.1211 0.1028 0.1202 0.1826 0.1668 0.1094 0.0776 0.0618 0.0697 0.1097 0.1181
Voting(10, yearly) 0.123 0.0616 0.1254 0.1753 0.1668 0.1093 0.0771 0.0668 0.0698 0.1077 0.1149
Voting(15, yearly) 0.125 0.0866 0.1275 0.1734 0.1674 0.1093 0.0802 0.0677 0.0699 0.1137 0.1176
Voting(20, yearly) 0.1238 0 0.1249 0.1736 0.1755 0.1093 0.0747 0.0687 0.0693 0.1173 0.1152
Voting(25, yearly) 0.1249 0.1808 0.126 0.1685 0.1743 0.1094 0.0768 0.0654 0.0667 0.1186 0.1279
Voting(30, yearly) 0.1245 0.1302 0.1276 0.171 0.1751 0.1159 0.0775 0.0648 0.0691 0.119 0.123
Voting(35, yearly) 0.1234 0.101 0.1267 0.17 0.1832 0.119 0.0777 0.0649 0.069 0.1173 0.1212
Voting(40, yearly) 0.1234 0.124 0.1263 0.1721 0.1833 0.1217 0.0793 0.0649 0.0689 0.1179 0.124
Voting(45, yearly) 0.1227 0.1025 0.1228 0.1749 0.1841 0.1242 0.08 0.0664 0.0697 0.1178 0.1225
Voting(50, yearly) 0.1202 0.1109 0.1235 0.1773 0.1848 0.1277 0.0799 0.066 0.0716 0.1162 0.1238
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
 Voting amon All Strategies Voting(k, period)
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 0.9854 0.5489 -1.735 0.0786 -0.3714 0.6882 0.8463 0.8382 1.2476 0.482 0.1530
Voting(10, monthly) 0.2618 0.9233 -0.9568 -0.11 -0.5306 0.6289 0.3479 0.309 0.5118 0.3867 0.0510
Voting(15, monthly) -0.4255 1.8839 -1.3166 -0.4607 -0.7157 0.732 0.1532 0.4858 0.9751 0.5353 -0.0224
CD
Voting(20, monthly) -0.7753 1.8524 -1.7661 -0.0556 -0.7635 0.5522 0.3703 -0.0804 1.1179 0.1302 -0.1726
ct Voting(25, monthly) -0.5941 1.6771 -2.0129 0.024 -0.8335 -0.6298 0.0978 -0.4603 1.1613 -0.1182 -0.3756
Voting(30, monthly) 0.2489 1.2557 -1.6933 -0.4138 -1.1946 -0.4083 -0.2947 0.0037 0.9149 0.3535 -0.3062
Voting(35, monthly) 0.0982 1.171 -1.4406 0.1065 -1.3197 0.2833 0.3183 0.7516 0.2552 0.5437 -0.1421
Voting(40, monthly) 1.0649 1.5348 -1.6721 -0.1771 -0.625 0.1329 0.2937 0.5668 -0.0704 1.1161 0.0715
Voting(45, monthly) 1.2988 1.4106 -1.3196 -0.2813 -0.7966 0.1792 0.0764 0.2598 -0.1268 0.4444 0.0128
CD Voting(50, monthly) 0.6 1.213 -0.8013 0.2578 -0.9977 0.5851 -0.1742 0.4229 -0.1886 0.4462 0.0383
Voting(5, yearly) 1.7773 0.1245 -0.7224 -0.308 -1.2249 0.1525 0.8852 -0.9695 1.9548 1.8279 0.1380
Voting(10, yearly) 1.5657 1.1483 -0.6346 -0.2462 -1.2249 0.1325 0.9015 -1.3552 2.0154 2.1928 0.1932
Voting(15, yearly) 1.8671 0.8567 -0.3408 -0.248 -1.359 0.1325 0.714 -1.2128 2.0249 1.6953 0.1956
Voting(20, yearly) 1.4189 NaN -0.5152 -0.2259 -1.1369 0.1325 0.4727 -1.1684 1.8534 1.7055 0.0885
Voting(25, yearly) 1.4502 1.0802 -0.3683 -0.3646 -1.1802 0.0981 0.6955 -0.9428 2.3075 1.332 0.2322
1.6459 0.3151 -0.302 -0.5742 -0.7614 1.0007 0.5119 -1.1228 1.9623 1.6902 0.2683
( Voting(30, yearly)
1.9298 1.4861 0.2327
Voting(35, yearly) 1.4036 0.6344 -0.329 -0.3741 -0.9534 0.8806 0.4382 -0.9382
Voting(40, yearly) 1.4036 0.4478 -0.2501 -0.4767 -0.7967 0.4314 0.6271 -1.0418 2.3049 1.6044 0.2363
- O Voting(45, yearly) 1.7015 -0.2321 -0.2179 -0.455 -0.7724 0.3269 0.7201 -1.0169 2.0753 1.6488 0.1992
Voting(50, yearly) 1.855 0.0069 -0.4445 -0.4186 -0.9773 0.8726 0.7812 -0.6722 2.4565 1.6882 0.2722
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
O.
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
0 Voting(5, monthly) 0.46 0.51 0.49 0.47 0.6 0.44 0.44 0.49 0.45 0.49 0.48
Voting(10, monthly) 0.45 0.48 0.47 0.45 0.61 0.53 0.42 0.51 0.47 0.48 0.49
Voting(15, monthly) 0.44 0.49 0.5 0.49 0.64 0.51 0.43 0.49 0.5 0.45 0.49
Voting(20, monthly) 0.46 0.51 0.51 0.51 0.56 0.52 0.45 0.49 0.52 0.46 0.5
Voting(25, monthly) 0.49 0.57 0.52 0.5 0.55 0.5 0.45 0.51 0.5 0.44 0.5
Voting(30, monthly) 0.48 0.53 0.47 0.46 0.57 0.51 0.44 0.48 0.5 0.46 0.49
'r- 0.47 0.56 0.48 0.41 0.5 0.52 0.49 0.49
Voting(35, monthly) 0.49 0.54 0.45
Voting(40, monthly) 0.53 0.56 0.47 0.48 0.56 0.47 0.43 0.49 0.51 0.45 0.5
Voting(45, monthly) 0.54 0.52 0.45 0.5 0.59 0.46 0.44 0.48 0.52 0.43 0.49
c--eO Voting(50, monthly) 0.5 0.51 0.48 0.52 0.56 0.48 0.4 0.49 0.52 0.46 0.49
0 Voting(5, yearly) 0.48 0.42 0.44 0.67 0.45 0.51 0.52 0.45 0.46 0.46 0.49
Voting(10, yearly) 0.48 0.21 0.47 0.62 0.45 0.51 0.54 0.48 0.46 0.49 0.47
Voting(15, yearly) 0.5 0.3 0.47 0.6 0.46 0.51 0.54 0.44 0.47 0.46 0.48
Voting(20, yearly) 0.48 0 0.46 0.6 0.48 0.51 0.5 0.45 0.45 0.51 0.44
Voting(25, yearly) 0.5 1 0.46 0.6 0.46 0.5 0.5 0.46 0.44 0.48 0.54
Voting(30, yearly) 0.49 0.62 0.46 0.59 0.48 0.49 0.5 0.44 0.44 0.51 0.5
Voting(35, yearly) 0.49 0.46 0.46 0.58 0.49 0.51 0.51 0.44 0.43 0.48 0.49
CD
C12 Voting(40, yearly) 0.49 0.6 0.45 0.59 0.48 0.53 0.52 0.45 0.43 0.48 0.5
Voting(45, yearly) 0.48 0.44 0.45 0.62 0.51 0.54 0.54 0.46 0.43 0.48 0.5
Voting(50, yearly) 0.47 0.46 0.46 0.62 0.53 0.53 0.54 0.44 0.46 0.48 0.5
 Voting among All Strategies Voting(k, period)
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Voting(5, monthly) 111 94 124 98 95 112 103 96 120 107 106
Voting(10, monthly) 111 96 110 96 101 115 119 116 125 107 109.6
Voting(15, monthly) 109 94 116 104 93 105 127 122 133 107 111
Voting(20, monthly) 107 96 120 108 99 101 133 122 131 105 112.2
Voting(25, monthly) 120 109 106 116 101 108 130 118 125 105 113.8
Voting(30, monthly) 120 113 104 120 113 104 122 124 119 104 114.3
Voting(35, monthly) 116 107 106 122 113 112 118 118 121 101 113.4
Voting(40, monthly) 114 115 121 119 109 108 124 122 119 117 116.8
031
Voting(45, monthly) 112 119 125 111 105 108 122 118 121 117 115.8
Voting(50, monthly) 112 115 111 113 111 120 128 128 119 125 118.2
Voting(5, yearly) 132 22 131 66 111 139 132 81 112 44 97
Voting(10, yearly) 128 7 128 74 111 139 130 81 114 109 102.1
Voting( 15, yearly) 127 6 128 82 113 139 130 107 114 59 100.5
Voting(20, yearly) 128 0 127 82 115 139 128 113 114 95 104.1
Voting(25, yearly) 127 0 130 88 117 130 127 115 110 99 104.3
Voting(30, yearly) 128 4 136 96 117 124 131 125 112 123 109.6
Voting(35, yearly) 128 8 132 96 117 116 127 121 110 111 106.6
Voting(40, yearly) 128 20 132 92 119 106 123 123 112 113 106.8
Voting(45, yearly) 127 19 137 92 117 112 119 119 110 107 105.9
Voting(50, yearly) 127 31 131 96 117 108 119 123 112 103 106.7
B.3 Performances of Best Performer Selection Strat-
egy in Combination with Individual Strategies

256
 CO

cD

a Best Performer Selection with Moving Average Convergence Divergence: Best Performer Selection(period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.2488 0.1514 -0.0223 -0.1083 -0.0437 0.2086 0.0587 -0.0724 0.0868 -0.0043 0.0441
0 Best Perf. Select.(yearly) 0.2667 0.1953 -0.047 0 0 0 0.0899 -0.0201 0.1362 0.0353 0.0613
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
CD Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.1353 0.1613 0.1884 0.0787 0.1012 0.1383 0.0857 0.0713 0.0791 0.1087 0.1208
Best Perf. Select.(yearly) 0.2031 0.1808 0.2025 0 0 0 0.1109 0.0956 0.1004 0.1596 0.1311
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
-I
O O0 Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Cr
CD Best Perf. Select.(monthly) 1.8391 0.9388 -0.1183 -1.3766 -0.4315 1.5086 0.6855 -1.0157 1.0962 -0.0394 0.3652
CD Best Perf. Select.(yearly) 1.3129 1.0802 -0.2323 NaN NaN NaN 0.8112 -0.2102 1.3565 0.2212 0.4674
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
('3 Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.77 0.85 0.75 0.24 0.27 0.75 0.63 0.51 0.81 0.55 0.61
Best Perf. Select.(yearly) 1 1 0.86 0 0 0 1 0.81 1 1 0.67
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 1 2 1 0 2 0 4 0 2 2 1.4
cD Best Perf. Select.(yearly) 0 0 1 0 0 0 0 4 0 0 0.5
CL
 c-
Moving Average Convergence Divergence (Number of Strategies = 1210)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
MACD(10, 120, 0) 1 1209 1 4 1207 1
MACD(5, 140, 0 ) 2 1207 1205 1 5 1210
MACD(15, 120, 0) 3 1206 3 7 1205 1201
MACD(35, 100, 0) 4 1204 1210 3 1208 1204
CD
MACD(10, 100, 0.02) 5 2 7 1208 2 1208
MACD(20, 120, 0) 6 3 1206 1210 1 1203
Oq MACD(50, 300, 0.20) 7 7 9 8 9 5
oq Cf
Oq
cD =
MACD(50, 300, 0.18) 8 8 10 9 10 6
MACD(50, 300, 0.16) 9 9 11 10 11 7
MACD(50, 300, 0.14 ) 10 10 12 11 12 8
on
Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
MACD(50, 300, 0.20 ) 1 1 109 328 656 901
MACD(50, 300, 0.18 ) 2 2 110 329 657 902
MACD(50, 300, 0.16 ) 3 3 111 330 658 886
MACD(50, 300, 0.14 ) 4 4 112 331 1186 1
MACD(50, 300, 0.12 ) 5 5 113 332 528 2
MACD(50, 300, 0.10 ) 6 6 114 333 1161 3
c• MACD(50, 300, 0.08 ) 7 7 115 334 1042 4
MACD(50, 300, 0.06) 8 8 116 335 3 5
0 S0
J~
0C MACD(50, 300, 0.04 ) 9 9 117 1174 16 6
 Best Performer Selection with Trend-based Regression Algorithm: Best Performer Selection(period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.2218 0.1748 -0.0531 -0.0553 -0.1184 0.1671 -0.0095 -0.0021 0.0794 0.0854 0.0434
Best Perf. Select.(yearly) 0.0503 0.0482 -0.0917 -0.2209 -0.2442 0.1785 -0.0411 -0.0092 0.1004 0.088 -0.0234
CD
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
CD
m1 Best Perf. Select.(monthly) 0.1138 0.1304 0.1693 0.1457 0.1725 0.1417 0.0786 0.0691 0.0708 0.1101 0.1256
coo
0. Best Perf. Select.(yearly) 0.1353 0.1183 0.1636 0.1112 0.1682 0.1472 0.0792 0.0612 0.0689 0.1167 0.1224
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
•1 Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 1.9495 1.3402 -0.3136 -0.3797 -0.6861 1.1794 -0.1209 -0.0308 1.1212 0.7757 0.3457
Best Perf. Select.(yearly) 0.3717 0.4073 -0.5605 -1.9872 -1.4518 1.2125 -0.5192 -0.1505 1.4572 0.754 -0.1911
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
CD Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.5 0.51 0.46 0.51 0.44 0.61 0.44 0.5 0.55 0.5 0.5
Best Perf. Select.(yearly) 0.42 0.43 0.46 0.44 0.51 0.73 0.57 0.39 0.56 0.55 0.51
01 Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 58 59 64 74 67 62 64 63 67 81 65.9
Best Perf. Select.(yearly) 77 54 114 87 93 22 29 9 138 51 67.4
 Trend-based Regression Algorithm (Number of Strategies = 990)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
Trend-based Regression(5, 60, 0.3) 1 64 19 129 224 855
Trend-based Regression(3, 90, 0.1) 2 258 906 296 350 673
Trend-based Regression(3, 80, 0.1) 3 927 465 433 451 637
Trend-based Regression(3, 40, 0.2) 4 902 208 217 802 90
Trend-based Regression(2, 40, 0.2) 5 990 209 38 156 882
Trend-based Regression(3, 100, 0.1) 6 28 901 481 289 549
Ct
Trend-based Regression(5, 10, 0.4) 7 8 152 281 788 401
Trend-based Regression(2, 100, 0.1) 8 112 943 439 940 596
Trend-based Regression(10, 90, 0.3) 9 158 240 399 44 988
c. D 184 883 502
~3~ Trend-based Regression(10, 10, 0) 10 268 167
Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
0~ Trend-based Regression(10, 80, 0.1) 1 710 517 680 907 528
0-c
Trend-based Regression(9, 80, 0.1) 2 692 164 398 600 473
Trend-based Regression(7, 10, 0.1) 3 242 818 985 76 814
Trend-based Regression(7, 10, 0.2) 4 236 862 989 368 832
Trend-based Regression(7, 10, 0) 5 305 651 990 66 913
Trend-based Regression(10, 90, 0.2) 6 558 197 844 862 470
Trend-based Regression(9, 80, 0) 7 563 894 769 539 571
Trend-based Regression(6, 10, 0.1) 8 260 963 976 129 939
Trend-based Regression(10, 20, 0) 9 277 675 682 31 642
Trend-based Regression(10, 20, 0.1) 10 362 832 548 2 815
 (D

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Zcju Best Performer Selection with Trend-based Regression Algorithm with Trading Volume (W:V = 1:1): Best Performer Selection(period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
ND Best Perf. Select. monthly) 0.194 -0.0242 -0.065 0.0711 -0.14 0.0029 0.0677 -0.0632 0.1077 0.1202 0.0225
Best Perf. Select.(yearly) -0.0015 0.0303 -0.0501 0.0534 -0.2498 0.1179 0.1386 -0.0331 0.0275 -0.0239 -0.0048
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
'-t1 Best Perf. Select.(monthly) 0.1526 0.1203 0.1486 0.1489 0.1649 0.1081 0.0837 0.0757 0.0706 0.1076 0.1226
(CD Best Perf. Select.(yearly) 0.1248 0.1283 0.1456 0.1553 0.1677 0.0973 0.0818 0.0693 0.0657 0.1271 0.1212
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 1.271 -0.2014 -0.4376 0.4776 -0.8491 0.0267 0.8089 -0.8338 1.525 1.1175 0.1835
Best Perf. Select.(yearly) -0.0117 0.2363 -0.3442 0.344 -1.4897 1.2123 1.694 -0.4779 0.4187 -0.1879 -0.0394
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.52 0.46 0.51 0.43 0.43 0.47 0.44 0.55 0.48 0.53 0.48
Best Perf. Select.(yearly) 0.48 0.51 0.5 0.48 0.48 0.4 0.47 0.46 0.48 0.51 0.48
0.
(D Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
I Best Perf. Select.(monthly) 135 130 126 116 82 99 120 121 138 137 120.4
Best Perf. Select.(yearly) 14 140 130 129 112 20 131 152 135 139 110.2
(CD
(D

II' C-S
a' .
Y

0f

Trend-based Regression Algorithm with Trading Volume (W:V = 1:1) (Number of Strategies = 990)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
Trend-based Regression w/Trad. Vol.(6, 6, 70, 0.1) 1 738 343 367 753 895
Trend-based Regression w/Trad. Vol.(6, 6, 70, 0.4) 2 581 345 282 213 981
Trend-based Regression w/Trad. Vol.(6, 6, 70, 0.3) 3 583 344 370 208 982
Trend-based Regression w/Trad. Vol.(6, 6, 70, 0.2) 4 739 342 369 212 894
Trend-based Regression w/Trad. Vol.(6, 6, 70, 0.9) 5 723 637 516 407 656
Trend-based Regression w/Trad. Vol.(6, 6, 70, 0) 6 734 341 366 752 655
CID
Trend-based Regression w/Trad. Vol.(6, 6, 70, 0.8) 7 722 638 265 431 657
0
Trend-based Regression w/Trad. Vol.(6, 6, 70, 0.5) 8 579 634 292 209 980
Trend-based Regression w/Trad. Vol.(6, 6, 80, 0.3) 9 678 524 764 424 579
Trend-based Regression w/Trad. Vol.(6, 6, 80, 0.6) 10 350 331 829 425 778
Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
'-1 Trend-based Regression w/Trad. Vol.(10, 10 ,10, 1) 1 889 760 175 886 128
Trend-based Regression w/Trad. Vol.(9, 9, 50, 0.3) 2 49 132 868 306 779
Trend-based Regression w/Trad. Vol.(9, 9, 50, 0.2) 3 50 125 887 406 822
Trend-based Regression w/Trad. Vol.(9, 9, 50, 0.1) 4 67 88 875 455 785
Trend-based Regression w/Trad. Vol.(7, 7, 50, 0.3) 5 114 254 761 507 675
Trend-based Regression w/Trad. Vol.(9, 9, 50, 0) 6 71 118 852 329 810
Trend-based Regression w/Trad. Vol.(9, 9, 50, 0.4) 7 34 227 822 286 715
Trend-based Regression w/Trad. Vol.(10, 10 ,10, 0.6) 8 600 972 343 521 127
Trend-based Regression w/Trad. Vol.(10, 10 ,10, 0.9) 9 765 775 91 502 22
Trend-based Regression w/Trad. Vol.(7, 7, 50, 0.2) 10 143 363 713 734 654

--
 CD

CD

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CD
09

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Best Performer Selection with Trend-based Regression Algorithm with Trading Volume (W:V = 2:1): Best Performer Selection(period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
ND Best Perf. Select.(monthly) 0.183 0.1336 -0.1196 -0.0879 -0.0266 0.0211 0.136 -0.0423 0.0249 0.1833 0.0351
c-F
kCD Best Perf. Select.(yearly) 0.215 -0.0767 0.1202 -0.0628 0.1358 0.0482 0.0824 -0.0205 0.0364 0.2218 0.0653
xD Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
CD Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.135 0.1194 0.1486 0.1522 0.1909 0.1132 0.0782 0.0774 0.0782 0.1103 0.1255
Best Perf. Select.(yearly) 0.124 0.1221 0.1594 0.1436 0.2018 0.1143 0.0786 0.068 0.0771 0.111 0.1262
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 1.3556 1.1192 -0.8043 -0.5773 -0.1392 0.1867 1.7375 -0.5466 0.3185 1.662 0.2801
Best Perf. Select.(yearly) 1.7338 -0.6284 0.7538 -0.4374 0.6729 0.4216 1.0491 -0.3017 0.4728 1.9975 0.5176
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.44 0.42 0.49 0.48 0.48 0.44 0.5 0.52 0.51 0.52 0.48
Best Perf. Select.(yearly) 0.5 0.47 0.48 0.44 0.51 0.51 0.52 0.43 0.49 0.52 0.49
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 124 109 121 86 127 114 115 123 113 128 116
Best Perf. Select.(yeay) 140 130 127 86 136 138 128 113 128 112 123.8

5.9
Go =I

It3
ix.
 Trend-based Regression Algorithm with Trading Volume (W:V = 2:1) (Number of Strategies = 770)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
Trend-based Regression w/Trad. Vol.(4, 2, 30, 0.7) 1 331 624 557 45 57
Trend-based Regression w/Trad. Vol.(4, 2, 30, 0.6) 2 406 625 765 47 49
Trend-based Regression w/Trad. Vol.(4, 2, 50, 1) 3 510 760 682 377 43
Trend-based Regression w/Trad. Vol.(12, 6, 10, 0) 4 691 58 92 86 694
Trend-based Regression w/Trad. Vol.(12, 6, 10, 0.5) 5 593 29 175 52 690
Trend-based Regression w/Trad. Vol.(12, 6, 10, 0.1) 6 743 57 219 84 691
Trend-based Regression w/Trad. Vol.(12, 6, 10, 0.2) 7 674 59 339 85 689
Trend-based Regression w/Trad. Vol.(12, 6, 10, 0.6) 8 590 211 173 55 693
Trend-based Regression w/Trad. Vol.(4, 2, 30, 0.8) 9 541 702 767 46 64
Trend-based Regression w/Trad. Vol.(4, 2, 30, 0.5) 10 100 616 757 48 53
Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
Trend-based Regression w/Trad. Vol.(12, 6, 90, 0) 1 184 680 645 449 612
Trend-based Regression w/Trad. Vol.(12, 6, 70, 0.3) 2 122 758 602 430 437
Trend-based Regression w/Trad. Vol.(12, 6, 80, 0) 3 198 735 684 387 372
Trend-based Regression w/Trad. Vol.(12, 6, 90, 0.1) 4 186 662 705 476 559
Trend-based Regression w/Trad. Vol.(12, 6, 90, 0.4) 5 123 602 675 256 534
Trend-based Regression w/Trad. Vol.(12, 6, 90, 0.3) 6 222 529 692 235 598
Trend-based Regression w/Trad. Vol.(12, 6, 90, 0.2) 7 191 514 706 293 634
Trend-based Regression w/Trad. Vol.(12, 6, 70, 0.2) 8 144 767 663 414 576
Trend-based Regression w/Trad. Vol.(12, 6, 70, 0.4) 9 190 752 617 409 477
Trend-based Regression w/Trad. Vol.(12, 6, 70, 0.5) 10 234 763 596 369 513
 zCD Best Performer Selection with Nearest Neighbors Algorithm: Best Performer Selection(period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.387 0.0543 -0.1607 -0.1593 -0.2357 0.1085 0.0164 -0.0367 0.0469 -0.0496 -0.0159
Best Perf. Select.(yearly) 0.3915 0.1614 -0.0587 -0.0531 -0.2082 0.2638 0.0547 -0.0412 0.0166 0.1059 0.0506
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
09 Best Perf. Select.(monthly) 0.1273 0.1081 0.1591 0.1773 0.1997 0.1208 0.0738 0.0724 0.0658 0.0997 0.1281
Best Perf. Select.(yearly) 0.1614 0.0863 0.1169 0.1446 0.2017 0.1711 0.0511 0.0622 0.072 0.1087 0.1271
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Cl
Best Perf. Select.(monthly) 3.0411 0.5025 -1.01 -0.8983 -1.1803 0.8979 0.222 -0.5062 0.7126 -0.4975 -0.1244
Best Perf. Select.(yearly) 2.4258 1.8711 -0.5019 -0.3673 -1.0323 1.5422 1.0695 -0.6619 0.23 0.9747 0.3985
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.5 0.42 0.54 0.73 0.64 0.52 0.42 0.5 0.45 0.38 0.51
Best Perf. Select.(yearly) 0.73 0.31 0.47 0.48 0.58 1 0.34 0.37 0.49 0.46 0.52
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
cD Best Perf. Select.(monthly) 83 89 86 47 82 72 107 99 95 85 84.5
Best Perf. Select.(yearly) 2 11 135 46 108 0 46 72 41 110 57.1
 Nearest Neighbors Algorithm (Number of Strategies = 1694)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
NN(14, 10, 0.5, regression) 1 1209 1 4 1207 1
NN(14, 10, 0.9, regression) 2 1207 1205 1 5 1210
NN(14, 10, 1, regression) 3 1206 3 7 1205 1201
NN(14, 10, 0.6, regression) 4 1204 1210 3 1208 1204
NN(14, 10, 0.7, regression) 5 2 7 1208 2 1208
NN(4, 10, 0, average) 6 3 1206 1210 1 1203
NN(4, 10, 0.1, average) 7 7 9 8 9 5
NN(14, 10, 0.8, regression) 8 8 10 9 10 6
cn NN(6, 100, 0, regression) 9 9 11 10 11 7
zS
CD
NN(14, 10, 0.3, regression) 10 10 12 11 12 8
Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
NN(10, 100, 0.7, regression) 1 1 109 328 656 901
0
NN(4, 400, 0.5, regression) 2 2 110 329 657 902
NN(14, 300, 0.8, regression) 3 3 111 330 658 886
NN(14, 250, 0.9, regression) 4 4 112 331 1186 1
NN(14, 250, 0.8, regression) 5 5 113 332 528 2
NN(8, 100, 0.8, regression) 6 6 114 333 1161 3
NN(10, 250, 0.9, regression) 7 7 115 334 1042 4
NN(10, 250, 0.8, regression) 8 8 116 335 3 5
NN(10, 50, 0.7, regression) 9 9 117 1174 16 6
NN(10, 200, 0.6, regression) 10 10 118 1140 17 7
 C)

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009 (D
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Or
Best Performer Selection with Nearest Neig bors Algorithm with Trading Volume (m:1 = 1:1): Best Performer Selection(period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.0156 0.0264 -0.0174 0.0595 -0.1759 0.1579 0.0789 0.0005 0.0944 0.022 0.0226
Best Perf. Select.(yearly) 0.2667 0.0645 0.0186 -0.0767 -0.2043 0.2207 0.0368 -0.054 0.1856 0.028 0.0395
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.1351 0.1181 0.1364 0.1758 0.189 0.1306 0.0831 0.0723 0.0744 0.0966 0.1271
Best Perf. Select.(yearly) 0.2031 0.1221 0.1596 0.158 0.1668 0.137 0.0806 0.0623 0.078 0.0967 0.1338
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
.. × Best Perf. Select.(monthly) 0.1156 0.2235 -0.1278 0.3387 -0.9305 1.2084 0.9496 0.0065 1.2681 0.2278 0.1777
Best Perf. Select.(yearly) 1.3129 0.5283 0.1165 -0.4853 -1.2249 1.6109 0.4563 -0.867 2.3787 0.2896 0.2948
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.46 0.39 0.48 0.54 0.63 0.46 0.56 0.5 0.56 0.46 0.5
Best Perf. Select.(yearly) 1 0.48 0.52 0.55 0.45 0.59 0.48 0.46 0.48 0.31 0.53
-- 1 U1cD 2004 2005 2007 1998-2007
Number of Tradings 1998 1999 2000 2001 2002 2003 2006
Best Perf. Select.(monthly) 73 80 113 84 100 100 117 95 100 104 96.6
Best Perf. Select.(yearly) 0 98 117 123 111 55 108 109 115 16 85.2
CD 0

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Nearest Neighbors Algorithm with Trading Volume (m:l = 1:1), (Number of Strategies = 1452)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
NN w/Trad. Vol.(3, 3, 1, regression) 1 80 807 1107 852 475
NN w/Trad. Vol.(3, 3, 0.9, regression) 2 81 808 1108 853 476
os NN w/Trad. Vol.(3, 3, 0.8, regression) 3 82 809 1109 854 477
NN w/Trad. Vol.(3, 3, 0.5, regression) 4 79 816 1017 850 479
NN w/Trad. Vol.(3, 3, 0.4, regression) 5 48 812 1018 1319 637
o ýz 6 49 813 1019 1320 638
NN w/Trad. Vol.(3, 3, 0.3, regression)
NN w/Trad. Vol.(3, 3, 0.2, regression) 7 50 814 1020 1321 639
NN w/Trad. Vol.(3, 3, 0.1, regression) 8 47 806 1015 1322 641
NN w/Trad. Vol.(3, 3, 0, regression) 9 51 815 1014 1318 640
NN w/Trad. Vol.(3, 3, 0.7, regression) 10 83 810 1110 851 478
Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
NN w/Trad. Vol.(4, 4, 0.5, average) 1 29 508 894 1345 1181
S-7
~
m-
00 NN w/Trad. Vol.(2, 2, 0.7, average) 2 27 734 414 635 855
NN w/Trad. Vol.(7, 7, 1, average) 3 30 69 895 881 868
NN w/Trad. Vol.(7, 7, 0.9, average) 4 31 70 896 882 869
NN w/Trad. Vol.(7, 7, 0.8, average) 5 32 71 897 883 870
NN w/Trad. Vol.(7, 7, 0.7, average) 6 33 72 898 884 871
NN w/Trad. Vol.(7, 7, 0.6, average) 7 34 73 899 885 872
NN w/Trad. Vol.(7, 7, 0.5, average) 8 35 74 900 886 873
NN w/Trad. Vol.(7, 7, 0.4, average) 9 36 75 901 887 874
In09crs .- . NN w/Trad. Vol.(7, 7, 0.3, average) 10 37 76 902 888 875

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 Best Performer Selection with Nearest Neig bors Algorithm with Trading Volume (m: = 2:1): Best Performer Selection(period)
Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.005 0.0602 -0.2048 0.055 -0.159 0.2669 -0.0117 0.064 0.0985 0.0239 0.0120
Best Perf. Select.(yearly) 0.1081 0.0093 -0.0067 -0.0146 -0.1 0.1864 -0.0537 -0.082 0.1363 0.0038 0.0148
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.1486 0.1165 0.1656 0.1536 0.2051 0.1103 0.0735 0.0737 0.0815 0.1043 0.1301
C.O Best Perf. Select.(yearly) 0.1054 0.1267 0.1584 0.205 0.1902 0.1318 0.0574 0.0668 0.0697 0.0917 0.1299
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
tQ Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.0339 0.5168 -1.2365 0.3581 -0.7752 2.4194 -0.1585 0.8676 1.208 0.2294 0.0922
Best Perf. Select.(yearly) 1.0256 0.0731 -0.0424 -0.0713 -0.526 1.4142 -0.9359 -1.2276 1.9548 0.0411 0.1137
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 0.52 0.4 0.47 0.6 0.58 0.44 0.44 0.48 0.51 0.49 0.49
Best Perf. Select.(yearly) 0.17 0.49 0.51 0.93 0.5 0.52 0.33 0.46 0.46 0.3 0.47
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
Best Perf. Select.(monthly) 84 89 111 88 96 105 104 106 117 116 101.6
Best Perf. Select.(yearly) 6 96 104 9 73 115 60 93 112 106 77.4
 Nearest Neighbors Algorithm with Trading Volume (m:l = 2:1), (Number of Strategies = 1694)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
NN w/Trad. Vol.(14, 7, 350, 0, regression) 1 241 665 1255 992 193
NN w/Trad. Vol.(14, 7, 350, 0.1, regression) 2 240 668 1279 994 190
NN w/Trad. Vol.(14, 7, 400, 0.1, regression) 3 1433 723 1249 1362 642
NN w/Trad. Vol.(14, 7, 400, 0.2, regression) 4 1432 669 1599 1360 641
NN w/Trad. Vol.(14, 7, 400, 0, regression) 5 414 722 1254 1361 91
NN w/Trad. Vol.(16, 8, 10, 0, regression) 6 1146 1205 681 66 48
NN w/Trad. Vol.(16, 8, 10, 0.9, regression) 7 1634 1332 1137 253 150
NN w/Trad. Vol.(16, 8, 10, 1, regression) 8 1633 1139 1295 250 152
CD NN w/Trad. Vol.(16, 8, 10, 0.2, regression) 9 1559 1156 813 13 83
ýD- NN w/Trad. Vol.(16, 8, 10, 0.3, regression) 10 1627 1155 814 92 85
cn Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
NN w/Trad. Vol.(10, 5, 10, 0.4, average) 1 915 1150 144 323 714
NN w/Trad. Vol.(14, 7, 10, 0.6, average) 2 1094 91 842 1524 87
NN w/Trad. Vol.(16, 8, 350, 0, regression) 3 884 969 190 1544 83
NN w/Trad. Vol.(16, 8, 500, 1, average) 4 50 114 844 970 990
NN w/Trad. Vol.(16, 8, 500, 0.9, average) 5 51 115 845 971 991
NN w/Trad. Vol.(16, 8, 500, 0.8, average) 6 52 116 846 972 992
NN w/Trad. Vol.(16, 8, 500, 0.7, average) 7 53 117 847 973 993
NN w/Trad. Vol.(16, 8, 500, 0.6, average) 8 54 118 848 974 994
NN w/Trad. Vol.(16, 8, 500, 0.5, average) 9 55 119 849 975 995
NN w/Trad. Vol.(16, 8, 500, 0.4, average) 10 56 120 850 976 996
c-·
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Best Performer Selection among All Strategies: Best Performer Selection(period)

Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
S Best Perf. Select.(monthly) 0.0571 0.0107 -0.2428 -0.0177 -0.1482 0.176 0.0439 0.0352 0.1226 -0.0223 -0.0057
Best Perf. Select.(yearly) 0.215 0.0482 -0.0587 -0.0146 -0.2043 0.2207 0.0824 -0.054 0.1363 0.088 0.038
Buy-and-Hold 0.2667 0.1953 -0.1014 -0.1304 -0.2337 0.2638 0.0899 0.03 0.1362 0.0353 0.0423
Volatilities 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
CD
Best Perf. Select.(monthly) 0.1274 0.1246 0.1453 0.1647 0.1694 0.1299 0.0782 0.0721 0.0747 0.105 0.1239
rJT Best Perf. Select.(yearly) 0.124 0.1183 0.1169 0.205 0.1668 0.137 0.0786 0.0623 0.0697 0.1167 0.1266
Buy-and-Hold 0.2031 0.1808 0.2218 0.2153 0.2602 0.1711 0.1109 0.1027 0.1004 0.1596 0.1802
Sharpe Ratios 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
cD
Best Perf. Select.(monthly) 0.4484 0.0857 -1.6713 -0.1075 -0.8746 1.3555 0. 5616 0.4877 1.6405 -0.2124 -0.0462
Best Perf. Select.(yearly) 1.7338 0.4073 -0.5019 -0.0713 -1.2249 1.6109 1.0491 -0.867 1.9548 0.754 0.3005
Buy-and-Hold 1.3129 1.0802 -0.457 -0.6059 -0.898 1.5422 0.8112 0.2923 1.3565 0.2212 0.2346
Cd Pin 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
liD Best Perf. Select.(monthly) 0.46 0.53 0.49 0.56 0.47 0.5 0.46 0.48 0.46 0.46 0.49
Best Perf. Select.(yearly) 0.5 0.43 0.47 0.93 0.45 0.59 0.52 0.46 0.46 0.55 0.53
Number of Tradings 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2007
CD
Best Perf. Select.(monthly) 102 103 110 108 100 109 114 106 111 95 105.8
cD Best Perf. Select.(yearly) 140 54 135 9 111 55 128 109 112 51 90.4
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 Top 10 Strategies (yearly)
1997 1998 1999 2000 2001
Trend-based Regression w/ Trend-based Regression(4, NN w/ Trad. Vol.(4, 2, 50, NN w/ Trad. Vol.(4, 4, 10,
Trad. Vol.(12, 6, 90, 0) 20, 0.3) NN(6, 450, 0, regression) 0.1, average) 0.5, regression)
Trend-based Regression w/ Trend-based Regression(4, NN w/ Trad. Vo1.(16, 8, 450, NN w/ Trad. Vol.(4, 4, 10,
Trad. Vol.(12, 6, 70, 0.3) 20, 0.9) NN(4, 200, 0, regression) 0.8, regression) 0.4, regression)
Trend-based Regression w/ Trend-based Regression(4, Trend-based Regression w/ NN w/ Trad. Vol.(4, 4, 10,
Trad. Vol.(12, 6, 80, 0) 10, 1) NN(12, 400, 0, regression) Trad. Vol.(6, 3, 50, 1) 0, regression)
0cD
Trend-based Regression w/ Trend-based Regression(3, NN w/ Trad. Vol.(16, 8, 450, NN w/ Trad. Vol.(4, 4, 10,
Trad. Vol.(12, 6, 90, 0.1) 20, 0.6) NN(6, 50, 0, regression) 1, regression) 0.1, regression)
Trend-based Regression w/ Trend-based Regression(4, NN w/ Trad. Vo1.(16, 8, 500, NN w/ Trad. Vol.(4, 4, 10,
Trad. Vol.(12, 6, 90, 0.4) 30, 0.2) NN(6, 350, 0, regression) 0.8, regression) 0.3, regression)
Trend-based Regression w/ NN w/ Trad. Vol.(14, 7, 100, NN w/ Trad. Vol.(16, 8, 450, NN w/ Trad. Vol.(4, 4, 10,
0
;3 Trad. Vol.(12, 6, 90, 0.3) 0.6, regression) NN(6, 500, 0, regression) 0.9, regression) 0.2, regression)
Trend-based Regression w/ Trend-based Regression w/ NN w/ Trad. Vol.(16, 8, 450, NN w/ Trad. Vol.(4, 4, 10,
o Trad. Vol.(12, 6, 90, 0.2) NN(10, 50, 0.5, regression) Trad. Vol.(6, 3, 70, 0) 0.7, regression) 0.6, regression)
o Trend-based Regression w/ Trend-based Regression w/ NN w/ Trad. Vol.(16, 8, 500, Trend-based Regression w/
Trad. Vol.(12, 6, 70, 0.2) Trad. Vol.(4, 2, 20, 0.4) NN(6, 150, 0.1, regression) 0.4, regression) Trad. Vol.(4, 2, 10, 0.1)
Trend-based Regression w/ NN w/ Trad. Vol.(16, 8, 500, Trend-based Regression w/
',I Trad. Vol.(12, 6, 70, 0.4) NN(2, 150, 0.5, regression) NN(6, 200, 0, regression) 0.5, regression) Trad. Vol.(4, 2, 10, 0)
Trend-based Regression w/ NN(12, 350, 0.4, NN w/ Trad. Vol.(16, 8, 450, Trend-based Regression w/
Trad. Vol.(12, 6, 70, 0.5) regression) NN(6, 250, 0, regression) 0.5, regression) Trad. Vol.(2, 2, 10, 0.7)
2002 2003 2004 2005 2006
NN w/ Trad. Vol.(3, 3, 400, Trend-based Regression w/ NN w/ Trad. Vol.(6, 6, 450, NN w/ Trad. Vol.(12, 6, 400, Trend-based Regression(9,
1, regression) Trad. Vol.(6, 3, 30, 0.2) 0.8, regression) 0.4, regression) 40, 0.5)
CD NN w/ Trad. Vol.(3, 3, 400, Trend-based Regression w/ NN w/ Trad. Vol.(4, 2, 400, NN w/ Trad. Vol.(12, 6, 400, Trend-based Regression w/
0.9, regression) Trad. Vol.(6, 3, 30, 0.1) 0.4, regression) 0.3, regression) Trad. Vol.(8, 4, 70, 0)
Trend-based Regression w/ Trend-based Regression(S, NN w/ Trad. Vol.(6, 6, 450, NN w/ Trad. Vol.(5, 5, 350, Trend-based Regression(10,
Trad. Vol.(12, 6, 20, 0.7) 20, 0.6) 0.7, regression) 0, average) 40, 0.5)
cj• Trend-based Regression w/ Trend-based Regression w/ NN w/ Trad. Vol.(4, 2, 400, NN w/ Trad. Vol.(12, 6, 400, NN w/ Trad. Vol.(10, 5, 150,
-1 Trad. Vol.(12, 6, 20, 0.8) Trad. Vol.(6, 3, 30, 0) 0.6, regression) 0.1, regression) 0, average)
Trend-based Regression w/ Trend-based Regression w/ NN w/ Trad. Vol.(4, 2, 400, NN w/ Trad. Vol.(12, 6, 400, NN w/ Trad. Vol.(7, 7, 250,
Trad. Vol.(12, 6, 20, 0.3) Trad. Vol.(6, 3, 60, 0) 0.7, regression) 0.5, regression) 0.1, average)
Trend-based Regression w/ Trend-based Regression w/ NN w/ Trad. Vol.(4, 2, 400, NN w/ Trad. Vol.(12, 6, 400, Trend-based Regression w/
Trad. Vol.(12, 6, 20, 0.4) Trad. Vol.(6, 3, 60, 0.3) 0.3, regression) 0.2, regression) Trad. Vol.(8, 4, 70, 0.1)
Trend-based Regression w/ Trend-based Regression w/ NN w/ Trad. Vol.(6, 6, 450, NN w/ Trad. Vol.(6, 3, 150, Trend-based Regression w/
Trad. Vol.(12, 6, 20, 0.2) Trad. Vol.(6, 3, 30, 0.4) 0.9, regression) 0.6, regression) Trad. Vol.(8, 4, 70, 0.2)
Trend-based Regression w/ Trend-based Regression w/ Trend-based Regression w/ NN w/ Trad. Vol.(12, 6, 400, Trend-based Regression w/
Trad. Vol.(12, 6, 20, 0.9) Trad. Vol.(6, 3, 30, 0.6) Trad. Vol.(12, 6, 10, 0.6) 1, regression) Trad. Vol.(8, 4, 70, 0.5)
Trend-based Regression w/ NN w/ Trad. Vol.(7, 7, 50, NN w/ Trad. Vol.(4, 2, 400, NN w/ Trad. Vol.(12, 6, 400, Trend-based Regression(8,
Trad. Vol.(12, 6, 20, 1) 0.9, regression) 0.5, regression) 0, regression) 30, 0.7)
Trend-based Regression w/ Trend-based Regression w/ Trend-based Regression w/ NN w/ Trad. Vol.(16, 8, 500, Trend-based Regression w/
Trad. Vol.(12, 6, 20, 0.1) Trad. Vol.(6, 3, 100, 0.7) Trad. Vol.(12, 6, 10, 0.5) 0.1, average) Trad. Vol.(8, 4, 70, 0.4)
 Eight Strategy Classes (Number of Strategies = 8808)
Best Perf. Select.(monthly) Dec97 Jan98 Feb98 Mar98 Apr98 May98
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.1) 1 7192 4518 4705 7444 8569
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.4) 2 5478 4520 4302 1046 8778
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.3) 3 5480 4519 4736 1041 8779
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.2) 4 7193 4517 4735 1045 8568
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.9) 5 5897 5483 5213 1586 7888
TBR(Index Return, 6; Chg of Trad.Vol., 6; 70, 0) 6 7188 4516 4704 7443 7886
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.8) 7 5896 5484 4195 1685 7889
TBR(Index Return, 6; Chg of Trad. Vol., 6; 70, 0.5) 8 5476 5480 4376 1042 8777
TBR(Index Return, 6; Chg of Trad. Vol., 6; 80, 0.3) 9 5793 5139 6072 1661 7641
TBR(Index Return, 6; Chg of Trad.Vol., 6; 80, 0.6) 10 1530 4486 6312 1662 8237
Best Perf. Select.(yearly) 1997 1998 1999 2000 2001 2002
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0) 1 3506 8479 8104 4198 5313
TBR(Index Return, 12; Chg of Trad.Vol., 6; 70, 0.3) 2 3229 8774 7784 4057 3342
TBR(Index Return, 12; Chg of Trad.Vol., 6; 80, 0) 3 3587 8708 8348 3755 2559
TBR(Index Return, 12; Chg of Trad. Vol., 6; 90, 0.1) 4 3513 8381 8499 4374 4651
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0.4) 5 3238 7995 8268 2920 4324
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0.3) 6 3733 6874 8415 2790 5135
TBR(Index Return, 12; Chg of Trad.Vol., 6; 90, 0.2) 7 3537 6761 8502 3086 5658
TBR(Index Return, 12; Chg of Trad.Vol., 6; 70, 0.2) 8 3334 8796 8225 3957 4908
TBR(Index Return, 12; Chg of Trad.Vol., 6; 70, 0.4) 9 3534 8762 7871 3917 3651
TBR(Index Return, 12; Chg of Trad.Vol., 6; 70, 0.5) 10 3777 8788 7737 3641 4037
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