Forecasting of Optimal Selecting-stock Strategy by Rolling Grey Model RGM (1, 1): Evidence from Taiwan 50 Index Stocks

This study examined an innovative forecasting method for improving stock selection strategy and portfolio performance. The rolling grey model was used to forecast daily closing price and expected return. All sample stocks were then ranked into ten groups based on expected return. The sample stocks remained in the portfolios for only one day. The empirical results of this study indicated that the realized return of stocks in the high expected-return quintile outperforms benchmark returns, including 50 index return and market return. That is, a manager with stock-selecting ability can achieve a higher return by RGM forecasting technique.