Rethinking Trend Following: Optimal Regime-Dependent Allocation
Most trend-following research focuses on signal construction: how to detect trends better, faster, or earlier. The paper asks a different question, and arguably a more [...]
About Valeriy Zakamulin
Valeriy Zakamulin is Professor of Finance at the School of Business and Law, University of Agder, Norway, where he teaches graduate courses in Finance. His first graduate academic degree is a MS in Radio Engineering. After receiving this degree, Valeriy Zakamulin had been working for many years as a research fellow at a computer science department, developing both computer hardware and software. Later on Valeriy Zakamulin received a MS in Economics and Business Administration and a PhD in Finance. He has published more than 30 articles in various refereed academic and practitioner journals and is a frequent speaker at international conferences. He has also served on editorial boards of several economics and finance journals. His current research interests cover behavioral finance, portfolio optimization, time-series analysis of financial data, financial asset return and risk predictability, and technical analysis of financial markets.Optimal Trend Following with Transaction Costs
In spite of the widespread popularity of trend-following investing, little is still known about optimal trend-following with transaction costs.
Optimal Trend Following Rules in Two-State Regime-Switching Models
We examine trend-following rules when the stock returns follow a two-state process that randomly switches between bull and bear markets.
Time Series Momentum: Theory and Evidence
Time Series Momentum in the US Stock Market: Empirical Evidence and Theoretical Implications Valeriy Zakamulin and Javier GinerWorking paper, University of Agder and University of [...]
Daily vs. Monthly Trend-Following Rules…Plus Some DIY Tools!
Trend-following strategies are a lot like stock-picking strategies -- there are endless approaches and varying levels of complexity. In this short piece, we explore the [...]
Pitfalls When Assessing Market-Timing Strategies
Consider a market-timing strategy which supposedly predicts the direction of the stock market trend. Such a strategy generates Buy and Sell signals. A Buy signal [...]
If you had to do a trend following strategy, what would it be and why?
The topic of this blog post was inspired by Wes, who said the following: Valeriy, you have done more formal academic research on trend-following than [...]
Is The US Stock Market Overvalued? Depends on which Model You ask
When stock prices reach a new high, investors start asking the question: Are stocks overvalued? To answer this question, investors have developed several alternative equity [...]
Trend-Following with Valeriy Zakamulin: Trading in Various Financial Markets (Part 8)
In our final blog post, that finishes the trend-following series, we briefly review the results of the forward-tests of the profitability of various trend following [...]
Trend-Following with Valeriy Zakamulin: Trading the S&P 500 Index (Part 7)
The Standard and Poor's (S&P) 500 index is a value-weighted stock index based on the market capitalizations of 500 large companies in the US. This [...]
Trend-Following: Testing the Profitability of Trading Rules (Part 6)
The difficulty in testing the profitability of trend-following rules stems from the fact that the procedure of testing involves either a single- or multi-variable optimization. [...]
Trend-Following with Valeriy Zakamulin: Performance Measurement and Outperformance Tests (Part 5)
We consider an investor and a financial market that consists of only two assets: one risky asset and one safe (or risk-fee) asset. An example [...]
Trend-Following with Valeriy Zakamulin: Anatomy of Trading Rules (Part 4)
In our context, a technical trading indicator can be considered as a combination of a specific technical trading rule with a particular moving average of [...]
TREND-FOLLOWING WITH VALERIY ZAKAMULIN: TECHNICAL TRADING RULES (PART 3)
A trend following strategy is based on switching between a financial asset and cash depending on whether the asset prices trend upward or downward. Specifically, [...]
Trend-Following with Valeriy Zakamulin: Types of Moving Averages (Part 2)
In this post we aim to give an overview of some specific types of moving averages. Specifically, we cover "ordinary" moving averages and mention some examples of exotic moving averages.
Trend-Following with Valeriy Zakamulin: Moving Average Basics (Part 1)
One of the basic principles of technical analysis is that ``prices move in trends". Traders firmly believe that these trends can be identified in a timely manner and used to generate profits and limit losses. Consequently, trend following is the most widespread market timing strategy; it tries to jump on a trend and ride it. Specifically, when stock prices are trending upward (downward), it's time to buy (sell) the stock. Even though trend following is very simple in concept, its practical realization is complicated. One of the major difficulties is that stock prices fluctuate wildly due to imbalances between supply and demand and due to constant arrival of new information about company fundamentals. These up-and-down fluctuations make it hard to identify turning points in a trend. Moving averages are used to ``smooth" the stock price in order to highlight the underlying trend.