This paper seeks to unconventionally maximize the volatility of a portfolio through a quartic optimization based on Markowitz’s modern portfolio theory, which generally seeks to do exactly the opposite. It shows that through this method, a daily leveraged exchange traded fund (ETF) strategy investigated by Posterro can be significantly improved upon in terms of its Sharpe ratio. The original strategy seeks to use a combination of momentum trading and tracking error in leveraged ETFs to trade during the last half an hour of the trading day, but it suffers in a low volatility market. By maximizing the volatility to take better advantage of tracking error and momentum, this problem is addressed by both increasing the mean daily return and significantly decreasing the variance of the strategy’s daily returns. GARCH forecasting is also implemented to assist in the maximization of the daily portfolios’ variances, though this does not prove to make a statistically significant difference in the strategy’s performance.

This thesis studies the momentum trading strategies, in which investors buy stocks that performed well in the past and sell stocks that underperformed over the same peiord of time. We examine the momentum strategies from January of 1995 to September of 2006. This thesis has two purposes. First, do the momentum trading strategies generate positive abnormal returns ? Second, do the momentum trading strategies generate positive abnormal returns even after we consider the limits of short-selling stocks ? The results indicate that the momentum trading strategies generate significant positive returns. Furthermore, the momentum trading strategies still offer positive abnormal returns even after the limits of short-selling shares are taken into account, although the magnitude of positive abnormal returns decreases.

In this study, it is determined that excess returns on the OMX 30 are confirmed to rise in anticipation of monetary policy decisions made by the central banks of Sweden and The United States of America. Those findings were manifested at a greater magnitude on the first day prior to the announcements and on a statistically significant level one day prior to monetary policy decisions from the Federal Open Market Committee. Moreover, excess returns beyond the average rate were found to be substantially higher on the first and third day prior monetary policy decisions from the Swedish Central bank (Riksbanken) albeit not on a statistically significant level. The results drawn from the data in the study were reinforced by findings in similar tests conducted during times of global recession.

Abstract This thesis investigates a set of equity market phenomena associated with investors' trading activity, using a comprehensive Finnish Central Securities Depository (FCSD) database that records practically all trades by Finnish investors. This database enables us to classify a large number of heterogeneous investors using both economic and institutional characteristics. The first essay classifies investors by trading activity. It analyzes trading styles of active and passive investors during the boom in technology stocks 1997–2000. We find that the herding tendency of active investors grew monotonically, year by year. Particularly large active investors used momentum and growth strategies. Moreover, buy pressures of active investors were positively related to contemporaneous daily returns. Passive investors, on the other hand, herd very strongly and their trading exhibited a contrarian style throughout the sample period. The second essay focuses on the relation between day trading of individual investors and intraday stock price volatility. I find a strong positive relation between the individual investors' day trades and volatility for actively day traded stocks. This finding suggests that day trading tends to increase volatility and/or day traders tend to become more active on the days of high volatility. The third essay tests the theoretical proposition of Amihud and Mendelson (1986) that investors hold assets with higher bid-ask spreads for longer periods. We measure holding periods of individual investors directly and find that they are positively related to spreads. The models control for a variety of other stock characteristics (e.g. value vs. growth orientation) and investors' attributes (e.g. gender) affecting holding periods. The fourth essay studies how both individual and institutional investors with different levels of capital gains and losses react to earnings announcements. I find that both sign and magnitude of capital gains affect individual investors' abnormal trading volumes. Individual investors are less prone to sell when they are carrying loses rather than gains. Furthermore, they react less to earnings announcements when capital gains or losses are large (over 20%). Taken together these findings provide support for prospect theory. Institutional investors appear to be less affected by psychological factors underlying prospect theory.

What do investors' searches for public information reveal about their subsequent trading strategies? Does their search for information support the hypothesis of market efficiency or does it lend support to the idea that investors have behavioral biases. Using Google Trends, we find that the volume of Google searches about feeder cattle is associated with re-enforcement of momentum trading in a manner consistent with a positive feedback mechanism. Further, we find evidence that search volume for "cattle" is associated with higher volatility and thus amplifies the positive feedback trading mechanism, while the search volume for "corn", a major input to cattle production, is associated with a reduction in volatility.

What do investors' searches for public information reveal about their subsequent trading strategies? Does their search for information support the hypothesis of market efficiency or does it lend support to the idea that investors have behavioral biases. Using Google Trends, we find that the volume of Google searches about feeder cattle is associated with re-enforcement of momentum trading in a manner consistent with a positive feedback mechanism. Further, we find evidence that search volume for "cattle" is associated with higher volatility and thus amplifies the positive feedback trading mechanism, while the search volume for "corn", a major input to cattle production, is associated with a reduction in volatility.