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Finance and Credit
 

Developing a trading strategy for investment portfolio construction based on leading indicators

Vol. 31, Iss. 1, JANUARY 2025

Received: 23 September 2024

Accepted: 21 October 2024

Available online: 30 January 2025

Subject Heading: INVESTING

JEL Classification: G11

Pages: 194-222

https://doi.org/10.24891/fc.31.1.194

Roman Yu. MIRONOV Lomonosov Moscow State University, Moscow, Russian Federation
mr.mironov2001@yandex.ru

https://orcid.org/0000-0001-5617-7591

Ivan V. SOFILKANICH Moscow International Academy, Moscow, Russian Federation
ivan.sofilkanich.99@mail.ru

ORCID id: not available

Subject. The article considers a trading strategy for investment portfolio construction, using leading indicators.
Objectives. The aim of the study is to shape an investment strategy with the preservation of capital in the stock market during crisis periods, based on leading indicators.
Methods. We employed traditional methods of cognition (analysis and synthesis, analogy, generalization, etc.), the graphical method, and backtesting.
Results. The paper highlights the main disadvantages of the existing methods of investment portfolio creation, classifies the most popular leading indicators according to their economic meaning, and tests them to predict the future dynamics of the S&P500 index. We offer a new approach to the formation of a securities portfolio based on leading indicators, and prove the effectiveness of the new trading strategy compared to the S&P500 index performance.
Conclusions. A trading strategy based on leading indicators enables investors to anticipate the onset of crisis periods to exit risky assets and predict the beginning of recovery phase of the economy to restore positions in market instruments. At the same time, the approach to forming an investment portfolio based on leading indicators has a wide scope for improvements, starting from combining various leading indicators and ending with the use of expert assessments to select an asset. This approach can be used by all groups of investors not only as a separate approach, but also in combination with other trading strategies.

Keywords: securities market, leading indicator, trading strategy

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