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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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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 ...
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 ...
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 "...
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 ...
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 ...
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 ...
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 ...
55 views

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 ...
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 ...
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 ...
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 ...
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 ...
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,...
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 ...
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-...
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 ...
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 ...
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 ...
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 ...
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 ...
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 ...
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 ...
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 ...
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 ...