Research has shown that several factors causes spinoffs to have an increased initial volatility. The trading system in this report analyses and trades on 16 different spinoffs from 10 years back, focusing on spinoffs from the Stockholm Stock Exchange.
The main driver of the system is the high initial volatility created in spinoffs from IPO. By using a timeframe of 10 weeks, the system is able to exploit the rapid price changes created in the spinoff.
Seven different trading strategies were constructed, generating trading signals for when to buy and sell the stock, based on moving averages and standard deviation. Through measuring and comparing among results, beta and sharpe values have been compared to B&H.
During the period, the best method generated significantly high returns. The daily average return was 31.4%, outperforming B&H in 13 out of 16 stocks. Beta at 0.72, thus implying that the method has a lower risk than B&H. Nearly 72% of all the trades that was made, were positive and in favor.