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A Basic Theory Of Intelligent Finance

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  • Heping Pan

    ()
    (Prediction Research Center, University of Electronic Science and Technology of China, North Jianshe Road, Chengdu 610054, China; Finance Research Center of China, Southwestern University of Finance & Economics, China; Australian Institute of Intelligent Finance, Graduate School of Information Technology and Mathematical Sciences, University of Ballarat, Australia)

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    Abstract

    This paper presents a basic theory of intelligent finance as a new paradigm of financial investment. It is assumed that the financial market is always in a state of swing between efficient and inefficient modes on multiple levels of time scale; it is possible to go beyond the efficient market theory to study the dynamic evolving process of the market between equilibrium and far-from-equilibrium; there are robust dynamic patterns in this evolving process, which may be exploitable via intelligent trading systems. On the foundation of the four principles — comprehensive, predictive, dynamic and strategic, the basic theory takes the information sources into the loop as the starting points for all the market analysis, introducing the scale space of time into the pricing process analysis in order to detect and capture trends, cycles and seasonality on multiple intrinsic levels of time scale which are then used as the dynamic basis for constructing and managing portfolios. In stock markets, the theory exhibits itself in the form of an Intelligent Dynamic Portfolio Theory, which integrates predictive modeling of a bull-bear market cycle, sector rotation, and portfolio optimization with a reactive trend following trading strategy.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal New Mathematics and Natural Computation.

    Volume (Year): 07 (2011)
    Issue (Month): 02 ()
    Pages: 197-227

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    Handle: RePEc:wsi:nmncxx:v:07:y:2011:i:02:p:197-227

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    Related research

    Keywords: Intelligent finance; financial market analysis; financial information fusion; multilevel process analysis; dynamic portfolio management; financial strategic analysis; bull-bear market cycle; intelligent dynamic portfolio theory;

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