Investment game

During the six-week Economics of Corporate Finance (ECON1440) course students took part in the stock investing competition, which I set-up via 'howthemarketworks.com' portal.

The winning strategy was a version of a reversal approach ('healthy reversal'). It considered stocks among the previous day losers, and chose several among them with solid fundamentals: positive profit margin and positive revenue growth. Also stop-loss order was arranged for every stock with trigger of -1%. The portfolio that followed this strategy gained 10% in its value over the 6 weeks during July - August 2019.

Back-testing of this strategy was performed for the universe of S&P 500 stocks using weekly frequency of data, obtained from Yahoo Finance. Stocks were picked weekly from among those below 25th percentile by their lagged return, subject to solid positive revenue growth and operating profit margin. The plot of cumulative returns on the left illustrates performance of the strategy. Backtesting confirmed superior performance of the strategy especially when it is combined with the risk management, such as using 'stop-loss' orders: Sharpe ratio 5.72, annualized Alpha 0.539 (e.g. abnormal return 53.9%).