French Trading Strategies – Stocks from France – (Rules & Backtest)
France is the seventh largest country in the world by GDP, making it one of the most important stock markets in the world. They have some of the biggest companies in the world, such as Louis Vuitton, Hermes, Dior, and Sanofi. However, we are traders, not investors, so let’s look at some trading strategies for French stocks.
However, the French stock market hasn’t performed well since 2001. Given the lack of outstanding returns, we decided to seek other strategies to trade this market and found that seasonal trading strategies could hold significant potential.
In this article, we will look at how the French stock market is composed and backtest a series of seasonal trading strategies.
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How is the French stock market composed?
The most popular stock index for the french market is the CAC 40. It was created in December 1987. It tracks the 40 largest French stocks based on the Euronext Paris market capitalization.
Some of its components include L’Oreal, Renault, Airbus and Michelin, and the companies mentioned in the introduction. Here is how the index has performed since its inception:
The returns haven’t been mind-blowing, but compared to other European countries’ indexes like Spain and Italy, it has done pretty well.
However, we asked ourselves if this performance could be improved through seasonal trading strategies, and we decided to start by determining the best day for French stocks.
What is the best day of the week for French stocks?
An interesting idea to backtest is to see which days French stocks perform the best.
In other words, how would a strategy that only holds French stocks on Mondays perform? And how about Tuesdays? And so on.
We used the ETF EWQ (iShares MSCI France) with the data adjusted for dividends. Here is the equity curve:
The results are pretty fascinating. Tuesdays and Wednesdays are the best-performing days, while Mondays are the worst. Interestingly, we found a similar pattern in Italian stocks.
Does the End-of-quarter seasonal trading strategy work in French stocks?
Another seasonal trading strategy is the end-of-quarter strategy.