Modelling and testing of investment strategy in capital market

Abstract

The U.S. stock market is dominated by large fluctuations because of investors sentiment changes. Investors’ views on the direction of market development are changing more frequently than usual, due to the existing uncertainty caused by the global pandemic situation caused by COVID-19. This is perfectly reflected in the price changes of the S&P 500 index. Significant fluctuations are forcing investors to look for new ways to take advantage of emerging opportunities while avoiding unexpected losses. Although sentiment in the stock market can be described as normal, all investors feel that there is a high degree of uncertainty caused by persistent systemic risk. The article discusses the concept of investment, as well as identifies types of investors and investment strategies and theories. The authors also modeled an investment strategy that included investment portfolio formation and management, identifying buy and sell signals and analyzing prevailing market sentiment. Such an investment strategy allows to react to a possible change in market sentiment, to analyze the data of the current period, not historical ones. The effectiveness of the modeled strategy was tested in the capital market.