France is the seventh largest nation on this planet by GDP, making it some of the vital inventory markets on this planet. They’ve among the greatest firms on this planet, resembling Louis Vuitton, Hermes, Dior, and Sanofi. Nevertheless, we’re merchants, not traders, so let’s have a look at some buying and selling methods for French shares.
Nevertheless, the French inventory market hasn’t carried out nicely since 2001. Given the dearth of excellent returns, we determined to hunt different methods to commerce this market and located that seasonal buying and selling methods might maintain vital potential.
On this article, we’ll have a look at how the French inventory market consists and backtest a sequence of seasonal buying and selling methods.
Associated studying:- Trading strategies for sale
How is the French inventory market composed?
The preferred inventory index for the french market is the CAC 40. It was created in December 1987. It tracks the 40 largest French shares primarily based on the Euronext Paris market capitalization.
A few of its elements embrace L’Oreal, Renault, Airbus and Michelin, and the businesses talked about within the introduction. Right here is how the index has carried out since its inception:
The returns haven’t been mind-blowing, however in comparison with different European international locations’ indexes like Spain and Italy, it has completed fairly nicely.
Nevertheless, we requested ourselves if this efficiency could possibly be improved via seasonal buying and selling methods, and we determined to start out by figuring out the perfect day for French shares.
What’s the finest day of the week for French shares?
An attention-grabbing concept to backtest is to see which days French shares carry out the perfect.
In different phrases, how would a technique that solely holds French shares on Mondays carry out? And the way about Tuesdays? And so forth.
We used the ETF EWQ (iShares MSCI France) with the info adjusted for dividends. Right here is the fairness curve:
The outcomes are fairly fascinating. Tuesdays and Wednesdays are the best-performing days, whereas Mondays are the worst. Curiously, we discovered an identical sample in Italian shares.
Does the Finish-of-quarter seasonal buying and selling technique work in French shares?
One other seasonal buying and selling technique is the end-of-quarter technique.
The tip of 1 / 4 is mostly thought to be an important time for traders as a result of it’s usually when most fund managers and hedge funds rebalance their portfolios, which might generate increased than traditional quantity and volatility.
The tip-of-quarter buying and selling technique tries to capitalize on these instances by holding shares the previous couple of days of the quarter.
The buying and selling technique we’re going to backtest is fairly easy:
- On the shut on the sixth final buying and selling day of the quarter, we go lengthy EWQ (therefore, we’re lengthy the final 5 buying and selling days of the quarter).
- On the shut of the month, we exit and promote our place.
Right here is the fairness curve:
As you possibly can see, the returns usually are not spectacular. The technique is invested 8.06% of the time and generated a CAGR of 1.97%. The danger-adjusted return is 24.4%(CAGR divided by time invested out there), which isn’t dangerous.
Does the flip of the month buying and selling technique work in French shares?
Lastly, we’ll backtest one other fashionable seasonal technique known as the flip of the month.
The thought is much like the end-of-quarter technique: on the shut of the fifth final buying and selling day of the month, we purchase EWQ. We maintain it for seven buying and selling days. Thus, we promote on the third buying and selling day of the brand new month. Right here is the fairness curve:
The returns are spectacular! The CAGR of the technique is 9.72% vs. 7% for purchase maintain, whereas the system is simply invested ⅓ of the time. Unquestionably, this has the perfect returns of the methods backtested as we speak, though the technique has gone kind of sideways for a decade because the fairness peak in 2012.
Seasonal buying and selling technique for French shares – conclusion
To sum up, as we speak we noticed how the French inventory market consists and backtested seasonal buying and selling methods utilizing the French ETF EWQ. We discovered that the end-of-month buying and selling technique works very nicely and could be applied in a buying and selling plan.