Hang Seng Index: Trend Persistent (Bull and Bear States)

Figure 1 summarizes the bifurcation parameter for the Hang Seng Index dating back to 1987. During this period there has been very little mean regressive market action. Even recently during the global credit crisis, the Hang Seng did not show the crisis state behavior that the US equity markets exhibited.


Figure 1. The Hang Seng Index has been Trend Persistent

The risk and reward profile of the Hang Seng Index is summarized in Figure 2. The Bull State (when the BP > 10% and R(0) > 0) shows a greater than 50% annualized return with moderate risk. The Bear State (when the BP > 10% and R(0) < 0) shows a -20% annualized return with 32% annualized risk.


Figure 2. The Hang Seng Index Risk Reward Profiles

A short term trend following strategy would appear to be effective in the current environment.