Application of technology indicators for the optimal portfolio—Evidence from main foreign currency exchange

• Main Authors: CHUN-HUNG HO, 何俊宏
• Other Authors: Po-Chin Wu
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/11727598230333591091

碩士 === 中原大學 === 國際貿易研究所 === 98 === In view of the growing liberalization of international banking market, the exchange rates tend to fluctuate violently. The exchange rate becomes a very important factor for the corporate and individual investment. At the same time, fluctuations of the foreign exchange rates also deeply influence the value of the company and the profits of investors.Both corporate and individual investors dream to make profits by predicting price movements. Scholars and experts have been trying to find out the rule of changing foreign exchange rates and serve it as the basis for access to foreign exchange markets.To use the technical analysis on investment strategies is getting mature. Although the concept of the portfolio can reduce investment risk, the investors still have to face a considerable degree of investment risk. Our research gets cross exchange daily data in Taiwan market as sample from Thomson Reuters, cover period from January 1, 2009 to December 31, 2009. We compare the return under portfolio theory and technical analysis with the market return in the same period. In portfolio theory part, we use main foreign currencies as target investments and apply Markowitz efficient frontier to decide optimal weight accordingly. There are 4 optimal portfolios according to the past 1 year, half year, 3 months and 1 month respectively. In technical analysis part, we use the cross of technical analysis indicators, such as Moving Average, Stochastics and Directional Movement Index, to decide the timing of trading and discuss the return of the past 1 year, half year, 3 months and 1 month. The empirical results show that under the portfolio theory, we can use the various foreign currencies returns and volatility in the past different time periods as the basis of judgment for filtering the best portfolio. For example, the Australian dollar is the best target for one-year or six-month investment.We find that the characteristic of the technical analysis can help us to have a better performance in the fluctuant market, which can avoid huge loss to devour profits in the short market, but have a worse performance then average in the flat market.Therefore, the use of technical indicators for trading signals will be effective for a larger return on investment.