Events Calendar

Speculative Dynamical Systems: How Technical Trading Rules Determine Price Dynamics

Speaker: Li-Xin Wang, Ph.D., Xian Jiaotong University, Department of Automation Science and Technology

Talk Title: Speculative Dynamical Systems: How Technical Trading Rules Determine Price Dynamics

Abstract: In this talk, I will first show how to use fuzzy systems theory to convert the following technical trading rules commonly used by stock practitioners into price dynamical equations: moving average rules, support and resistance rules, trend line rules, big buyer and big seller rules, manipulator rules, band and stop rules, and volume and relative strength rules. Then, I will analyze the price dynamical model with the moving average rules in detail, showing: (1) there exist an infinite number of price equilibriums, but all these equilibriums are unstable; (2) volatility is a deterministic function of the model parameters; (3) short-term prediction is possible with the “prediction horizon” characterized by the Lyapunov exponent; and (4) how return correlations move from sub-diffusion to norm-diffusion and then to super-diffusion as the model parameters change. Finally, I will apply the big buyer/seller model to Hong Kong stocks and show how to detect big buyers in the market and follow them up to make money. Specifically, I will develop two trading strategies, namely Follow-the-Big-Buyer and Ride-the-Mood, and apply them to the top 20 banking and real estate stocks listed in the Hong Kong Stock Exchange for the seven-year period from July 3, 2007 to July 2, 2014; the results show that the net profits would increase 67% or 120% on average if an investor switched from the benchmark Buy-and-Hold strategy to the Follow-the-Big-Buyer or Ride-the-Mood strategies during this period, respectively. This talk is based on the paper: http://ssrn.com/abstract=2508276.

Biography: Li-Xin Wang received the Ph.D. degree from the Department of Electrical Engineering, University of Southern California, in 1992. From 1992 to 1993, he was a Postdoctoral Fellow with the Department of Electrical Engineering and Computer Science, University of California at Berkeley. From 1993 to 2007, he was on the faculty of the Department of Electronic and Computer Engineering, The Hong Kong University of Science and Technology (HKUST). In 2007, he resigned from his tenured position at HKUST to become an independent researcher and investor in the stock and real estate markets in Hong Kong and China. In Fall 2013, he returned to academic and joined the faculty of the Department of Automation Science and Technology, Xian Jiaotong University, Xian, China, after a fruitful hunting journey across the wild land of investment to achieve financial freedom. His research interests are dynamical models of asset prices, market microstructure, trading strategies, fuzzy systems, and adaptive nonlinear control. Dr. Wang received USC’s Phi Kappa Phi Student Recognition Award in 1992.


Host: Professor Jerry Mendel

Location: Hughes Aircraft Electrical Engineering Center (EEB) - 132

Audiences: Everyone Is Invited

Contact: Talyia White