Probabilistic Momentum or Trend Following Strategy? Empirical Evidence of Taiwan TOP 50 ETF、Taiwan Mid-Cap 100 ETF

[[abstract]]This research mainly applies the probabilistic momentum of Daivd Varadi (2014) and the trend trading strategy to the Taiwan stock market. By choosing stocks with momentum higher than the benchmark index and/or moving average of prices, the reconstructed portfolios are found to have better performance than the benchmark indices, i.e., Taiwan Top 50 ETF and Taiwan Mid-Cap 100 ETF. The empirical results show that: 1) for Taiwan Top 50 ETF, 8-month trend following strategy with equal weighting has the best performance among all strategies, with annual rate of return of 18.09% and Sharpe ratio of 0.96; 2) The investment performance of the trend trading strategy is better than Taiwan Top 50 ETF, Taiwan Mid-Cap 100 ETF and Weighted Index. It thus can be verified that the trend trading strategy is effective.But the probabilistic momentum strategy is not better than other strategies; 3) The trend trading strategy perform better than the probabilistic momentum strategy