Hang Seng Kurtosis Trade

After 1 month of creation of this blog, I am finally getting round to posting something. The indicator I am testing here is a cross-over of 100-day kurtosis with 30-day kurtosis. The data sample used in the backtest is the daily HSI returns from 1/3/2000 to 12/31/2008. The data-set was created deliberately to include 1 shock and the great collapse of last year.

The 3 strategies tested here are:

1. Long HSI for 30 days when 30-day kurtosis is greater than 100-day kurtosis (HSI KURT)
2. Long HSI for 30 days when 30-day volatility is greater than 100-day volatility (HIS VOL) (this totally goes against my instinct, but just wanted to check)
3. Long HSI ATM straddle when 30-day kurtosis is greater than 100-day kurtosis(HSI GAM)

Strategy 3 looks to be a good hedge for startegies 1 and 2. And it provides protection from big shocks. The trade is quite inactive though yielding 5-6 trades a year on an average. Strategy 3 is the only one I expected to work before I tested any of them but the results say otherwise.

Reasons and thoughts are invited...