New trading strategy in investment and a new anomaly: A study of the hedge funds from emerging and developed markets
- Publisher:
- Elsevier
- Publication Type:
- Journal Article
- Citation:
- Heliyon, 2023, 9, (12), pp. e22486
- Issue Date:
- 2023-12
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This paper introduces a new trading strategy in investment including the asset Asset A with the highest mean the asset Asset B that stochastically dominates many other assets and the asset Asset C with the smallest standard deviation in their portfolio to form portfolios in the efficient frontier for emerging and developed markets that could get higher expected utility and or expected arbitrage opportunities To test whether our proposed new trading strategy performs better we set a few conjectures including the conjectures that investors should include any one two or three of Assets A B and C from emerging and developed markets We test whether the conjectures hold by employing both mean variance and stochastic dominance SD approaches to examine the performance of the portfolio formed by using hedge funds from emerging and developed markets with and without Assets A B and C the na ve 1 N portfolio and all other assets studied in our paper We find that most of the portfolios with assets A B and C stochastically dominate the corresponding portfolio without any one two or all three of the A B and C strategies and dominate most if not all of the individual assets and the na ve 1 N portfolio in the emerging and developed markets implying the existence of expected arbitrage opportunities in either emerging or developed markets and the market is inefficient In addition in this paper we set a i conjecture i that combinations of portfolios with no arbitrage opportunity could generate portfolios that could have expected arbitrage opportunity Our findings conclude that the conjecture holds and we claim that this phenomenon is a new anomaly in the financial market and our paper discovers a new anomaly in the financial market that expected arbitrage opportunity could be generated We also conduct an out of sample analysis to check whether our proposed approach will work well in the out of sample period Our findings also confirm our proposed new trading strategy to include Assets A
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