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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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0answers
110 views

How to fit an appropriate SDE [closed]

Does any one know how we can fit an appropriate SDE to a time series data? how to understand which model will describe the model well? and then how to estimate its parameters? To be more specified, I ...
0
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1answer
326 views

Support vector regression (LIBSVM) returns out of range outputs when I use out-of-sample data to predict one step ahead (MATLAB)?

I'm using SVR model in MATLAB R2016a using this option: options_z = ['-q -s 3 -t 2 -c ', C_param, ' -p ', epsilon, ' -g ,Kernel_scale]; I'm optimizing SVR ...
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0answers
41 views

Volatility of investment (/w currency hedging)

I´ve been trying to compute volatility of investment with currency hedging, and I have a question. Let's take this example. We have our money in a fond copying the S&P500 index, which has 16% ...
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0answers
353 views

R - suggested precedures in caret to fit stable precise binary classifiers to financial data

Building a binary precise classifier to forecast financial outcomes (stock rise vs. fall) brings up some nifty complications within caret. 1. classifier selection: there are tons of classifiers ...
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1answer
197 views

Test for significance of peaks (maximum) in time series

I have a time series of values, something like this: ...
1
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0answers
61 views

PDF of sums, products of iid Normals

I've recently taken to looking at the distribution of a financial time series of the form $$X_t = X_{t-1}(1+W_t)$$ where $W_t$ is iid $N(0,\sigma^2)$. Expanding the equation out we get $$X_t = X_0\...
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0answers
315 views

Vector Autoregression for modelling log-returns?

I am wondering if Vector Autoregression (and other autoregressive models) is a sound modelling for the daily (not high-frequency!) log-returns of time series from liquid financial markets. One can ...
0
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1answer
76 views

Data trending decision criteria

I'm playing a game in which you can buy and sell items (it's an mmorpg). Now, after certain events, there is a huge drop in the price of certain items (there is a seasonal double experience weekend in ...
1
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0answers
51 views

Variance of stock returns in Schwert (1989)

Schwert (1989) writes on page 1117: "The estimator of the variance of the monthly return is the sum of the squared daily returns (after subtracting the average daily return in the month): $$\hat \...
2
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1answer
115 views

How to identify studies that should be replicated?

In psychology voting on which studies should be replicated is established on a website. The ReplicationWiki (that I founded) offers a voting option for studies in economics and related fields, but it ...
0
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1answer
43 views

How to properly calculate average need-based aid met by an institution?

As an institution we give out a certain amount of financial aid every year (need-based aid) to each student. This need-based aid does not always meet the students estimated need. My task is to compare ...
3
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2answers
186 views

Interpretation of standard deviation if data is not normally distributed

This is very basic question. But I want to know how one can interpret the standard deviation if data is not normally distributed. My concern is regarding financial market. Investors generally use ...
0
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1answer
546 views

Running regressions where coefficients change over time

I'm trying to predict monthly stock price returns using 93 features that I think may be relevant. I have data for these features from 1990 to 2015. For each month from 1990 to 2015 I run a ...
2
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1answer
925 views

Easy explanation of how to fit a multivariate GARCH model (in Gretl)

I have multiple financial time series data (FX-rates, commodity prices) that have been recorded daily (without weekends) for the past six years and want to analyze their effect/influence on the stock ...
0
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1answer
57 views

How can I slowly decay a percentage over time (not linearly)?

I'm not a statistician, but I am incredibly interested in personal finance, budgeting, and investment management. I've been building a large spreadsheet of my personal expenses, savings, and ...
3
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1answer
3k views

Have MLE estimators for Generalized Pareto Distribution. Given a known value of $c$, how do I calculate $a$ and $b$ using the provided estimators?

I am doing research into the three parameter Generalized Pareto Distribution $$ f(x|a,b,c) = \frac 1 b\left(1+a\left(\frac{x-c}{b}\right)\right)^{\big(-1-\frac 1 a\big)} $$ for finding VaR and CVaR. ...
1
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1answer
532 views

Stock return - Regression with multiple dummies

I have a case where I want to test if a corporate credit rating change by Moody's affects the company/security that experience the event. I also want to test if the effect is more or less extreme ...
3
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0answers
218 views

Forecasting demand with out-of-stock data

Usually retailers have a service level that is below 1.0, which means that share of products is out-of-stock some of the time. What is the best practice or possible ways of using out-of-stock data to ...
2
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2answers
153 views

What is a good way to model this set of time-series data? What might the distribution be? (Personal expenses)

I'm trying to make some sense out of this data, but have been having some trouble. The data is of personal expenses made during the last 90 days. How would one go about the modeling this type of data? ...
8
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2answers
8k views

Difference between Time delayed neural networks and Recurrent neural networks

I would like to use a Neural Network to predict financial time series. I come from an IT background and have some knowledge of Neural Networks and I have been reading about these: TDNN RNN I have ...
9
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1answer
3k views

Testing Sharpe Ratio significance

What is the proper way to test the significance of Sharpe Ratios or Information Ratios? The Sharpe Ratios will be based on various equity indices and may have variable look-back periods. One solution ...
1
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1answer
153 views

Books on using SAS to analyze market risk

Is there a book that teaches you how to use SAS to analyze the market risk of a portfolio of stocks,bonds and options?
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0answers
116 views

Weather analysis | company sales

I'm writing a python code that reads in a csv file of rain in inches for a given zip code and creates a normal distribution from the data. Ultimately, I want to be able to create some score for the ...
2
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0answers
67 views

How to test hypothesis on the composition of CAPM portfolios

I'm facing two different portfolios in CAPM framework derived as $$\hat{\omega}_P=\hat{\Sigma}^{-1}\frac{E(r)-r_f}{H}(\hat{\mu}-\iota'r_f)$$ on the same assets but, for example, on different time ...
0
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0answers
2k views

Implementing the Bayesian Information Criterion (BIC) Using PyKalman

I'm trying to use pykalman to do a Kalman filter on financial data and it seems to be generally working very well. However, when I attempt to extend the code using BIC $\mathrm{BIC} = {-2 \cdot \ln{\...
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1answer
53 views

Data Projection in the Future

Suppose we have the following data: ...
1
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0answers
52 views

Sequential mutually exclusive signing-bonus offers (A variant on the Secretary Problem)

How much should you offer a potential hire in a signing bonus? Imagine you are interviewing a list of candidates for a particular job. Each candidate has a "lifetime value", and probability of ...
1
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1answer
115 views

Comparing interest rate and yearly stock return

I would like to compare the interest rate with the yearly return of a stock A and plot the 2 lines into 1 graph. The interest rate, which is also a yearly return, is on any given date determined by ...
0
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1answer
71 views

Modelling turnovers by a random walk. Is it right?

I need to analyse a bunch of weekly time series that reflect the turnovers of various companies. I already read that return rates or share prices show stochastic patterns that can be modelled by a ...
2
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1answer
1k views

ARCH + GARCH sum to more than 1. Dropping the intercept

I am capturing the daily percentage returns of a stock index with dummy variables. I do this both including and excluding the intercept. I get quite different results. If I keep the intercept (image ...
6
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0answers
335 views

Empirical distribution function of overlapping time series data

If we model asset return volatility for periods of more than one (say more than one day) there is the square-root rule which holds true under some assumptions. On the other hand practitioners ...
0
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1answer
26 views

I get a different result when I try and calculate the mean-variance formula of risky and riskless asset [closed]

I'm having trouble seeing how the expected return of a two asset portfolio, where the weight of the risk-free asset is positive, but the weight of the risky asset is negative, results in the final ...
0
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0answers
161 views

Distribution of daily log returns in Black-Scholes

We re in the Black-Scholes framework. So $(S_t)_{t \geq 0}, t \in \mathbb{N}$ (underlying) is a stochastic process on $(\Omega,\mathcal{F},\mathbb{P})$ with the filtration $(\mathcal{F}_{t})_{t \geq 0}...
0
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1answer
802 views

Standard Deviation in Transformation vs annualizing monthly returns?

I'm very confused about this difference, and I wanted to know the reason behind it (If this is very rudimentary, I'm sorry but I can't seem to wrap my head around it). If you were to transform a data ...
0
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1answer
633 views

Comparison of Two Time Series (Strategies) - Are they different?

Apologies for my naivety if the answer to the question is simple, stats is an area I am not comfortable in and am looking to improve. My problem is within the frame of finance. Simply put, say I ...
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1answer
1k views

Mortgage loan predictive analysis

I have hundreds of thousands of mortgage loan historic records that look like these 2 examples: ...
4
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1answer
5k views

use ARIMA models to predict stock prices

Are there any books or compilation of research papers that discuss application of ARIMA models to forecast prices in financial markets I.e stocks,commodities,futures,options etc. I found this one but ...
3
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1answer
229 views

Applying the Bayesian Information Criterion for Stepwise Selection Algorithms on Time Series

The title sounds rather complicated for fairly simple statistics issue. I've created a factor model that tests adding additional factors by checking if the improvement in the mean squared error ...
11
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2answers
938 views

The econometrics of a Bayesian approach to event study methodology

Event studies are widespread in economics and finance to determine the effect of an event on a stock price, but they are almost always based on frequentist reasoning. An OLS regression -- over a ...
0
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0answers
643 views

Log returns and ARMA-GARCH models

I try to model currency rates volatility using GARCH models through the RUGARCH package in R. Starting from the observed currency rate series, I compute the log-return through: ...
3
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2answers
2k views

Difference between geometric and arithmetic mean

I still have problems to exactly understand the difference between geometric and arithmetic mean. I know that e.g. for returns, the arithmetic mean can be wrong (e.g. if I start with 100 $ and if my ...
5
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0answers
72 views

Using overlapping data as if it was not

I am looking again at a popular statistical testing method used in finance, suspect it's a bit naughty, but would like to have a more experienced eye take a look also. The method is the following, ...
19
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1answer
26k views

Why stock prices are lognormal but stock returns are normal

Except for the fact that returns can be negative while prices must be positive, is there any other reason behind modelling stock prices as a log normal distribution but modelling stock returns as a ...
2
votes
1answer
641 views

What is the dummy variable in the Henriksson-Merton model for market timing ability?

I am a little confused about calculating the dummy variable on the Henriksson-Merton model for market timing ability. Some researches used 1 if the excess return for market is negative but other ...
1
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1answer
18 views

How to assign a value to an item with no fixed price that is sold alone or in combination?

Let's say we have a set of items with no fixed price, and a set of transactions in which these items are sold alone or in combination. How do I go about assigning a value to each of these items? ...
0
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2answers
6k views

What is the purpose of leads and lags in a time series?

I'm analyzing stock prices and I don't understand the purpose of leading and lagging. Can you suggest explain why we use them and how they might help to analyze stock prices?
1
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2answers
447 views

Statistical test of stock returns product

Say I have a sequence of stock returns: $X_1, ..., X_n$. Then I make a sample of products: $X_1X_2, X_2X_3, ..., X_iX_{i+1},..., X_{n-1}X_n$ How to test, if the sample mean is significantly different ...
1
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0answers
39 views

One model or 178 models?

I am doing a school project, where I am modeling next quarter's stock price using the information about the stock in the current quarter. The main goal is to see if we can find any statistically ...
5
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2answers
461 views

Credit Risk and Concentration

I am working with a UK credit-union and we are looking to build a model to assess our credit risk and changes to this over time. We have a number of loans to borrowers who each have a credit rating (...
4
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2answers
402 views

How to stationarize profit and loss data with an increasing variance and large negative values for time series analysis?

PnL can take large negative values, and its variance increases over time as the firm grows. If we do differencing, an increasing variance remains. If we take log, negative values cannot be defined. ...