This research analyzes the relationship between algorithm trading and institution trading in spot and futures markets for Taiwan index futures. Six alternative algorithm trading strategies of technical analyses, alternative KD, MA and MACD, MA and KD, MACD and KD, and MA, KD, and MACD, are conducted for back testing for the period from January 1, 2001 to April 28, 2011. Due to being lack of data for the period from January 1, 2001 to July 1, 2004 on Taiwan futures exchange, we connect the buy/sell signals to long and short positions for open interest for first five institutional traders by conducting the probit regression. We find that, institutional trading significantly affects the buy/sell signals for algorithm trading by six alternative technical analyses. In addition, it earns positive profits for six algorithm trading strategies. Specifically, it is the highest profit for algorithm trading of MA, KD, and MACD.
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