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viernes, 30 de abril de 2010

an ABCT bursatile index

Perhaps this already exists, but my knowledge is poor, only theoretical and limited to commodities trading.

What if we create an index to detect the fluctuations of the market according to the Austrian Business Cycle Theory?

When a boom is just starting, we could invest in higher value companies and products, like cars, industrial equipment, steel or cement. When the bust starts, we change to consumer low value products, like corn, rice or milk powder.

Starting on a day zero we could take (let's say) 100 million dollars in industrial commodities, with and aleatory distribution among the range of products, and the same money on consumer commodities. Then we register the fluctuations in the value of the two portfolios as:

ABCT index = (IC change, last 30 days) / (CC change, last 30 days)

ABCT = 1
means nothing happens

ABCT > 1
means a boom is going on and you should invest in IC

ABCT < 1
means a bust, invest in CC

If the sign of any change is negative then it is obvious the sector is falling and you should run away from it.

The reason to use a 30 days frame is because industry's short term credits are generally for 30 days. That's the time it would take to detect someone is out of money.

From time to time, the portfolios should be adjusted because of technological improvements. I think the tool is VERY VERY rough, but it might do the job. It allows to see where is the newly printed money going, or not.