Advances in Economics, Management and Political Sciences

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Proceedings of the 2023 International Conference on Management Research and Economic Development

Series Vol. 18 , 13 September 2023


Open Access | Article

The Implementation and Refinement of Range Breakout Strategy in Chinese Commodity Market

Ruihan Deng 1 , Jiayi Wang * 2 , Hanyang Dong 3 , Wantung Lo 4 , Haolin Dong 5
1 ESSEC Business School
2 Duke Kunshan University
3 University of California
4 The University of Edinburgh
5 Yew Chung international school of BeiJing

* Author to whom correspondence should be addressed.

Advances in Economics, Management and Political Sciences, Vol. 18, 27-45
Published 13 September 2023. © 2023 The Author(s). Published by EWA Publishing
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Citation Ruihan Deng, Jiayi Wang, Hanyang Dong, Wantung Lo, Haolin Dong. The Implementation and Refinement of Range Breakout Strategy in Chinese Commodity Market. AEMPS (2023) Vol. 18: 27-45. DOI: 10.54254/2754-1169/18/20230053.

Abstract

The range breakout strategy is a momentum strategy that involves taking a long position in a security when its price exceeds a predetermined range and a short position when the price falls below the range. Previous research has indicated that this strategy is well-suited to the price volatility patterns observed in commodity markets. Considering the significant expansion and di-versification of China's commodity market in recent years, we decided to apply the range breakout strategy to China's commodity futures market and assess its feasibility and profitability. Our research utilized historical performance data from the Zhengzhou Commodity Exchange and Shanghai Future Exchange between September 1, 2012, and July 31, 2022, obtained from CSMR as our database. We focused on the top 27 most liquid commodity futures categories to construct our back-testing portfolio. Our approach centered around using volatility as the basis for entry signals in the range breakout strategy and signal weighting as a portfolio construction method. The results demonstrate that the range breakout strategy, based on volatility, is highly effective in China's commodity futures market. This research con-tributes to the enrichment of optimization strategies in China's Future Market. Furthermore, we explored the use of cross-commodity hedging and the Average True Range (ATR) indicator to further enhance the strategy. Although no practical improvements were discovered beyond the original strategy, this exploration offers valuable insights for future research.

Keywords

range breakout, commodity futures, Chinese future market, hedge funds

References

1. Ming-Ming, L. and Siok-Hwa, L. (2006) The Profitability of the Simple Moving Averages and Trading Range Breakout in the Asian Stock Markets. Journal of Asian Economics 17 (1): 144–70. https://doi.org/10.1016/j.asieco.2005.12.001.

2. Kung, J. (2009) Predictability of Technical Trading Rules: Evidence from the Taiwan Stock Market. Review of Applied Economics 5 (1-2). https://dotnetrest.lincoln.ac.nz/O365flowClient/cache/sites/www-content/Lincoln%20WWW/Documents/Faculties/COMMERCE/Review-of-Applied-Economics/Documentation-2008-2010/4-James%20J%20kung.pdf.

3. Gerritsen, D. F., Bouri, E., Ramezanifar, E., and Roubaud, D. (2019) The Profitability of Technical Trading Rules in the Bitcoin Market. Finance Research Letters, August. https://doi.org/10.1016/j.frl.2019.08.011.

4. Yu, H.,Nartea, G. V., Gan, C., and Yao, L. J. (2013) Predictive Ability and Profitability of Simple Technical Trading Rules: Recent Evidence from Southeast Asian Stock Markets. International Review of Economics & Finance 25 (January): 356–71. https://doi.org/10.1016/j.iref.2012.07.016.

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6. Chevallier, J., and Ielpo F. (2014) ‘Time Series Momentum’ in Commodity Markets. Managerial Finance 40 (7): 662–80. https://doi.org/10.1108/mf-11-2013-0322.

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Data Availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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Volume Title
Proceedings of the 2023 International Conference on Management Research and Economic Development
ISBN (Print)
978-1-915371-79-9
ISBN (Online)
978-1-915371-80-5
Published Date
13 September 2023
Series
Advances in Economics, Management and Political Sciences
ISSN (Print)
2754-1169
ISSN (Online)
2754-1177
DOI
10.54254/2754-1169/18/20230053
Copyright
© 2023 The Author(s)
Open Access
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited

Copyright © 2023 EWA Publishing. Unless Otherwise Stated