Welcome to Francis Academic Press

Academic Journal of Business & Management, 2024, 6(7); doi: 10.25236/AJBM.2024.060731.

A Study on the Effectiveness of SPY ETF Prediction Based on Signal Trading

Author(s)

Yiwen Liu

Corresponding Author:
Yiwen Liu
Affiliation(s)

International Business College, Dongbei University of Finance and Economics, Dalian, China

Abstract

An exchange-traded fund (ETF) is a popular trading tool in today's stock market, known for its low cost, low risk, and high liquidity. Enhancing the accuracy of predicting ETF future prices using quality trading strategies is of interest. This study selects the widely traded SPY ETF in the U.S. market as a representative. It utilizes market signal theory and panel data of daily closing prices of five major international stock indices from 2012 to 2021. Python Jupiter notebook is used as the programming tool to construct a multiple regression model and conduct a series of predictive analyses. The aim is to track SPY price changes by measuring the fluctuations in other stock indices, thereby predicting SPY prices. Following regression predictions, a time series prediction model is employed, and the market signal predictions are compared with a Buy-and-hold strategy. Lastly, using metrics like R2, Adj-R2, Sharpe ratio, and Maximum drawdown as evaluation criteria, empirical results are observed. The findings indicate that the Signal-based trading strategy outperforms Buy-and-hold, yet the impact of several stock index prices on ETF regression is not significant. Investors should adhere to cautionary principles, consider market signals, and diversify investments to mitigate risks.

Keywords

Signal-based Trading, Multiple Linear Regression, Sharpe Ratio, Maximum Drawdown

Cite This Paper

Yiwen Liu. A Study on the Effectiveness of SPY ETF Prediction Based on Signal Trading. Academic Journal of Business & Management (2024) Vol. 6, Issue 7: 224-228. https://doi.org/10.25236/AJBM.2024.060731.

References

[1] James C. (2023)Exchange-Traded Fund (ETF) Explanation With Pros and Cons Available from: https://www.investopedia.com/terms/e/etf.asp

[2] Vogit, K. and Benson, A. (2023)Exchange Traded Fund (ETF) Definition Available from: https://www.nerdwallet.com/

[3] Simpson, Stephen D. (2023) A Brief History of Exchange-Traded Funds Available from: https://www.investopedia.com/

[4] Zarattini, Carlo, Andrew Aziz, and Andrea Barbon. "Beat the Market: An Effective Intraday Momentum Strategy for S&P500 ETF (SPY)." Available at SSRN 4824172 (2024).

[5] Chang, Pei-Chann, T. Warren Liao, Jyun-Jie Lin, and Chin-Yuan Fan. "A dynamic threshold decision system for stock trading signal detection." Applied Soft Computing, 11(5) (2011): 3998-4010.

[6] Luo L, Chen X. Integrating piecewise linear representation and weighted support vector machine for stock trading signal prediction. Applied Soft Computing. 2013 Feb 1; 13(2):806-16. 

[7] Björck Å. Least squares methods. Handbook of numerical analysis. 1990 Jan 1; 1: 465-652.