Author(s)

Xiao Sa

Corresponding Author

Xiao Sa

ABSTRACT

During these years, the development of Chinese financial market leads to various financial products available to investors. Considering the current situation of Chinese financial market, timing strategies could bring abnormal return higher than pure passive investment. The index investment is more preferred due to its low transaction cost and high level of transparency. Exchange-traded fund (ETF) could track the index by an arbitrage mechanism given by purchasing and redeeming units. Although traditional strategies focusing on technical analysis indicators such as moving average lines are widely used among investors, they could possibly mislead investors during fluctuation and offer outdated information. Since ETFs are based on indices, the trading data of ETFs could offer incremental information for index timing above classical technical indicators. Moreover, ETFs could track indices in real time, which allow us to construct trading signals with less lag. In this paper, based on trading data of ETFs and corresponding underlying indices at minute frequency, we construct three timing signals (open-close signal, day-close signal and volume-based signal) and a combined signal. We also conduct back-test for these signals with the most two liquid indices (SSE50 and CSI300) in Chinese market.

KEYWORDS

ETF, market sentiment, timing strategy