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Senior Project

Senior Project

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Senior Project

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  1. Camden Ball Quantitative and momentum modeling in optimizing stockmarket performance

  2. “Risk comes from not knowing what you’re doing.” –Warren Buffett

  3. Overview • Basic quantitative modeling • Establish “triggers” determining when to buy/sell • Ride the “momentum” of the stock market

  4. Terms • Financial Modeling: Financial modeling is the process of building an abstract financial representation that consists of mathematical calculations with recommendations, of financial decisions. This model may be used in corporate finance and accounting or quantitative finance applications. • ETF (Exchange Traded Fund): A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold. • Index: A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value.  Definitions from Investopedia

  5. Trade trigger: Any type of event that triggers a securities trade. A trade trigger is usually a market condition, such as a rise or fall in the price of an index or security. Trade triggers are used to automate certain types of trades, such as selling shares of a stock when the price reaches a certain level. Definitions from Investopedia

  6. Assumptions • Start with $100,000 • When the trigger (percentage at which to buy/sell is reached) is met, go all in (sell all held or buy the highest amount possible with money) • After you buy, you must wait at least two market days before selling (assuming the percentage is reached) • Trade at 3:59 EST

  7. S&P 500 and SPDR (SPY) • The Standard & Poor’s 500 (S&P 500) is an index which represents the overall market • The Standard & Poor’s Depository Receipts (SPDR, SPY) is an ETF which corresponds to the S&P 500

  8. Relation of research to fieldwork • Research included highly complex models • Research assumed availability of data • Good blueprint for fieldwork • Comfortable working with ETF’s • Prepared me to approach investing from historical as well as practical perspectives

  9. Highlights and Challenges • Highlight: Training under an experienced day trader and a high-level Wall Street analyst • Challenges: Getting the project approved, accessing data, and prolonged beta testing

  10. Fieldwork • Began with shadowing mentor (making an actual trade) • FOREX online trading course • Initial interviews and ongoing discussions with Wall Street analyst • Meetings with Mr. Reinstein, Mr. Bogust (mentor), Mr. O’Meally (analyst) • Close monitoring by Mr. Bogust • Data collection/research • Data computation • Beta testing to find buy/sell triggers • Collaboration with William Bolden on graphical representation of the results

  11. Results • Over 657 trading days starting 5/25/2011($132.39) and ending at 1/2/2014 ($183.98) in which the SPY went up 38% • Buy: +0.63% • Sell: -0.42% • Total profit holding: $38,150 • Total profit using model: $423,352

  12. Strengths and weaknesses • Strengths: Real data, outperformed market (holding), and good introduction to quantitative modeling • Weaknesses: Simplistic, brief span of time, and historical data

  13. What I learned • Importance of determination • How to manage and distribute time • Complexity of quantitative modeling and of the stock market in general • Applying theoretical model to real world data • Working with a broad range of people, perspectives, and work styles

  14. ESLRS • Scholarly • Reliable resources and technology to access, interpret, and utilize information • Required independent as well as collaborative work • Demonstrated academic excellence • Skilled • Developed innovative and creative problem solving skills through critical thinking • Demonstrated life and career preparedness • Humane • Ethical use of technologies to obtain, process, and convey information

  15. Conclusion • Quantitative modeling can be an effective investment strategy • Momentum modeling of riding upwards trends (+0.63%) and selling on downward (-0.42%) can be an effective way of approaching trading • $38,150 (holding) v. $423,352 (model) • Difference of +$385,202 on initial $100,000 investment

  16. Program coded by William Bolden

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