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2014 IEEE International Conference on Granular Computing (GrC) (2014)
Noboribetsu, Japan
Oct. 22, 2014 to Oct. 24, 2014
ISBN: 978-1-4799-5464-3
pp: 106-111
Ta-Wei Hung , Institute of Information Science, Academia Sinica, Taipei, Taiwan
Mu-En Wu , Department of Mathematics, Soochow University, Taipei, Taiwan
Chuan-Ju Wang , Department of Computer Science, University of Taipei
William W. Y. Hsu , Department of Computer Science and Engineering National Taiwan Ocean University, Keelung, Taiwan
Jan-Ming Ho , Research Center for Information Technology Innovation, Academia Sinica, Taipei, Taiwan
ABSTRACT
We propose a novel approach, called random traders, to benchmark equity funds' performance. A random trader adopts an all-in-all-out strategy to buy and sell the market index at random timing with capital being negligible as compared with the market size. With the empirical distribution of a random trader's return, each equity fund is scored by the proportion of random traders with poorer performance. Based on this technique, we develop two trading schemes to show the profitability of random traders. The Scheme I achieves the accumulated profit of 104% by backtesting in 396 equity funds investing in Taiwan market from June 2004 to December 2012. Furthermore, we develop Scheme II for the purpose of reducing frequency of trading when taking account into the transaction fees. The experimental results show the accumulated profit of Scheme II achieves 111.93% with the transaction fees 1.5% for each trade. Compared to the traditional method, always investing funds of top 10% performance, our trading scheme gets more 62.32% profit during this period. Moreover, the performance of Scheme II achieves the top 3% of that in these 396 funds.
INDEX TERMS
Indexes, Portfolios, Investment, Benchmark testing, Mutual funds, Educational institutions, Timing
CITATION

T. Hung, M. Wu, C. Wang, W. W. Hsu and J. Ho, "On the design of trading schemes of equity funds based on random traders," 2014 IEEE International Conference on Granular Computing (GrC)(GRC), Noboribetsu, Japan, 2014, pp. 106-111.
doi:10.1109/GRC.2014.6982816
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