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Questions tagged [finance]

The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities.

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1answer
92 views

Deal with noise data

The following picture represents a graph with price over time. I am a mathematical student, but also a trader. I want to create a function which could localize the good entry and exit points for sale ...
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0answers
542 views

Medium Frequency Trading - Better labelling strategy?

The mid-price at time $t$ is denoted by $$p_t = \frac{s_t^{a,1} + s_t^{b,1}}{2}.$$ This mid-price can evolve in minimum increments of half a tick but is almost always observed to move at ...
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2answers
593 views

Are S&P 500 monthly (or annual) returns a random walk?

I'm using financial software that assumes that yearly market returns are random and independent in their Monte Carlo analysis. Its not clear to me that this is the case. Is there an easy way for a "...
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0answers
56 views

How to decide on the best in-sample period to forecast out-of-sample?

I have to generate an out-of-sample forecast for an assignment at university. The question asks that I select an in-sample period, from 2008-2017, for the returns on my portfolio. I am curious as to ...
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0answers
34 views

Annualized standard deviation and Sharpe ratio

Say I have a trading strategy that has given n trades over a period of t trading days. To compute the annual profit I will do something like CAGR = prod(profits+1)^(1/(t/252)) Then I will subtract ...
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1answer
356 views

Why is a return process assumed to be stationary when there is volatility clustering present?

I am analysing a logarithmic returns series only to find the ADF result to signify the stationarity of the series. I understand that this is a way of differencing the original price series, however I ...
3
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0answers
107 views

Can non-parametric tests, e.g. Mann-Whitney U, be used on non-normally distributed statistics off of bootstrap samples?

I have some return data from some different portfolios which I would like to compare using risk vs return ratios. The standard Sharpe ratio has a nice solution for calculating the significance of the ...
0
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1answer
55 views

Variance of $\frac{t}{T}X+Y$

I would like to understand how variance of multiple random variables is computed when weights of the variables changes over time. For example, let $\displaystyle X_{t}$ be a random variable at time $\...
0
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1answer
59 views

Calculating Variance of a random variable with time dependence

I am currently trying to undertstand the concept of Value at Risk, which attempts to calculate the a value such that the potential loss on a portfolio is bounded by a number with 99% probability. The ...
0
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1answer
326 views

Generating and interpreting betas for credit spreads

My goal is to model individual credits spreads against a "benchmark" credit spread in order to generate a beta that is the fixed-income equivalent of the market beta used in capital asset pricing ...
0
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1answer
40 views

Has anyone used Machine Learning Techniques for estimating CAPM?

I tried to find papers working out different estimators for CAPM beta or 3 or 4 factor model but couldn‘t find any. Do you know if anyone has used machine learning techniques like xgboost or neural ...
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0answers
45 views

Continous vs categorical predictions

I have been thinking about this recently. I want to predict tomorrows price for a certain stock, lets say apple. For this I can use many different models; regression analysis, random forest, RNN... ...
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0answers
211 views

Random Forest for financial networks modelling

One of the hottest topics in today econometrics is financial networks models where researches use vector autoregressive (VAR) models applied to time series of daily volatility measurements of ...
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1answer
40 views

Annualized Excess Return [closed]

I have been given the following formula to calculated Annualized excess return: Annualized excess return = (1+Monthly excess return)^12-1 The answer is provided ...
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0answers
1k views

OLS regression using the CAPM model in python

I've checked several posts here and haven't found what I'm looking for... The goal is to do a CAPM regression and assume that you have the following information: monthly prices for company AAPL, S&...
1
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0answers
33 views

What's the best model for a history of time-stamped events vs. a binary response?

I have three tables: A list of client ids For those clients, 3 years of time-stamped inclusions/exclusions in a credit bureau blacklist For those clients, 1 year of time-stamped negotiations with the ...
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2answers
120 views

How to predict time series data with ARIMA

I'm a beginner in data analysis field and I wanna try to predict time series data using ARIMA model but I still don't understand some of the concept. I've read some papers about ARIMA and this model -...
4
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1answer
261 views

What to do with missing data in a DCC-GARCH models for 2 assets?

Suppose I try to model DCC-GARCH on two assets, let say Apple and Samsung. I had the daily log return for Apple and Samsung and I merged the data. ...
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0answers
516 views

Time series- log returns statistics, test normality

I downloaded data from yahoo to study all the statistics of the time series. I then calculated the returns by using: $Ln(\frac{S_t}{S_{t}-1})$ using the adj close price in the following excel file: ...
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1answer
129 views

Why do we use the moments of the stock returns? [closed]

Why do we use the moments of the stock returns instead of calculating directly the stock's moments? For example why do we use the standard deviation of the returns to measure the standard deviation ...
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1answer
2k views

What are the Advantages of R over Python in Statistics? [duplicate]

So I'm a budding quant, but came from an Economics background so what I learned first was R and, of course, have fallen in love ever since. However, I recently started doing research on why Python ...
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1answer
295 views

Time Series - absolute vs relative prices

What is the best statistical test to determine the relationship between the absolute price of a time series compared to the spread, or relative change, in the same time series? For example, time ...
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0answers
22 views

How to deal with dependent variable that has different ranges for different groups?

I have loan-level data on peer-to-peer (p2p) loans. I am studying how the number of bank branches in the borrower's county affect his willingness to pay for p2p loans. My LHS variable is the borrower'...
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0answers
34 views

Which statistical significance test to use for specific finance experiment?

I'm in the middle of my empirical analysis. My goal is to show the behaviour of the CDS-bond-basis of European banks after a rating downgrade occured. I have all my data gathered and cleaned. My ...
0
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0answers
74 views

OLS coefficients change signs at some point in time

I am running an OLS in which the dependent variable is the sum of daily log returns on S&P 500 and as independent variables I use some variables which I believe "drive" the SPX returns. My data ...
2
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1answer
2k views

Principal Component Analysis Stock Returns

I am new to PCA and am having trouble understanding some parts of the methodology. In multi-factor models you can run regressions like: Stock Return = A(1)*Size + A(2)*Market Return + ... So in ...
0
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1answer
31 views

Corporate Finance experiment, non-parametric test

I have an numerical, continous variable as my dependent variable, namely CDS. My independent variable is categorical, namely different time intervals after a downgrade. Unfortunately my data does ...
1
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0answers
172 views

What approach to use for debt collection modeling with real world data?

I work in a bank and am tasked with designing the debt collection data science dept. from the ground up. Basically, we need to implement strategies that maximize our cash flow in perpetuity. I have a ...
0
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1answer
36 views

What is the most reliable way to import self-updating financial data into R currently? [closed]

The broad question of finding free financial data has been tackled extensively (http://quant.stackexchange.com/questions/141/what-data-sources-are-available-online), however, all things R change like ...
2
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0answers
87 views

Who says trading data are noisy? [closed]

We try to denoise our time-series and model inputs with a plethora of methods like Kalman filters, EMA, Kernel filters, Splines, Beziers, etc. But who came up with a theory that trading data is noisy ...
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0answers
62 views

Using one stock price as a predictor for another stock price

I have two stock prices with a strong trend which are non-stationary. I want to calculate the correlation between one stock say $x$ and another stock say $y$, but lagged 7 days back. Why should I ...
2
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1answer
348 views

A time series logit model with lagged dependent variable

I have a panel dataset for stocks. My goal is to model and predict if the stock will close positive (1) tomorrow based on today's close (1/0) and other macroeconomic and firm-specific variables.So I ...
0
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1answer
33 views

Enumerating actions for Q-learning

I have a Q-learning model that is for forex trading, so my initial thought is that there will be only 3 kinds of possible moves: Buy Sell Hold However, the reward for each action is different given ...
0
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1answer
637 views

What are some leading academic papers on Machine Learning applied to financial markets [closed]

I am looking for some seminal papers regarding machine learning being applied to financial markets, I am interested in all areas of finance however to keep this question specific I am now looking at ...
0
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1answer
141 views

Choosing ARMA parameters - is my process right?

I have been practicing choosing the correct ARMA models for data & feel I may be doing something wrong. I have yielded the same answer for every single stock -ARMA(0,0). I just wanted to confirm ...
0
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1answer
182 views

Model specification for quantile regression

I am new to Quantile Regression and have a couple of questions. First, assume I want to study the relation between a bond index and various financial variables such as an equity market index over the ...
0
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1answer
308 views

Linear Regression Transformation of Dependent Variable by Natural Log and a Constant

I have a dependent variable (rolling 12 month stock returns) that includes negative values. The returns are right skewed, so for a normal model without negatives, I would take the natural log. However,...
1
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0answers
44 views

Value-at-Risk Interpretation

Regarding the VaR formula: VaR = -U-ZX Where U is the average return, X is the standard deviation and Z is the negative number of standard deviations that specifies the probability level associated ...
1
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0answers
647 views

Time normalisation for time series using sliding window

As part of my research into eigenvalue dynamics of financial time series I am reading a paper which introduces the idea of time series normalisation between stocks before computing the zero-lag cross-...
0
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0answers
47 views

Validation of Neural Networks

As data analytics and machine-learning approaches become more and more integrated, proper validation of such models also gain traction. Since validation of models are a necessity in many industries ...
1
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0answers
28 views

Non significant Results in Calendar Anomaly study

I am currently working on my Bachelor Thesis, but i'm running into some problems. Firstly, to sketch the situation, this is what my thesis is about: I am testing to see if calendar anomalies have ...
4
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1answer
5k views

Kalman filter vs Kalman Smoother for beta calculations

I am trying to calculate the beta of two timeseries by setting up a state-space model, calculating its covariances via the EM algorithm and finally running the kalman filter/smoother. From what I have ...
0
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1answer
120 views

correlation between first order difference of two group variables

I am doing correlation test on a factor and stock price(both are numerical values). I calculate the correlation from the following two ways: Pearson correlation between factor value and stock price ...
0
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0answers
103 views

SAS PCA first 10 eigenvalues only explains 10% of the variance

I am running a Principal Component Analysis on intra-day second level returns of all the stocks that trade in the U.S. The matrix is constructed as where each row is the return of all stocks in ...
0
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0answers
325 views

Log return: when is using it more justified?

I am fitting models to stock price time series. The interval of each series is 40-minutes (relatively small time frames, in the context of stocks). I will use ARIMA or GARCH in R. Purpose of ...
1
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0answers
67 views

PCA without mean centering for achieving asset returns decomposition

Given a set of asset classes (specifically their log-returns), I would like to decompose their returns in to the principle components, in a manner that will preserve the scale of the returns. I'm not ...
2
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3answers
599 views

Normal vs leptokurtic distribution for financial returns

Financial returns have been shown to follow leptokutotic distributions, however volatility forecasting models like EWMA and DCC-GARCH assume conditionally (dependent on time) Normal distribution for ...
0
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1answer
729 views

multi-factor time-varying CAPM using kalman filter

I am trying to implement a time-varying CAPM model using the kalman filter. I have already found numerous examples in R and python using the DLM and the pykalman packages but the problem is that they ...
0
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1answer
72 views

Time-series linear combination that fits a given time-series

Given N different time-series and a new time-series for the same time period, what would be the correct approach to finding a linear combination of the N time-series which best describes the new time-...
1
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0answers
36 views

Problem finding a fitting statistical test

I'm conducting a study where i am evaluating valuations of companies written by students in their master theses'. In these papers they are giving a target price for a company/stock. One of the things ...