Adaptive trend estimation in financial time series via multiscale change-point-induced basis recovery
Low-frequency financial returns can be modelled as centered around piecewise-constant trend functions which change at certain points in time. We propose a new stochastic time series framework which captures this feature. The main ingredient of our model is a hierarchically-ordered oscillatory basis of simple piecewise-constant functions. It differs from the Fourier-like bases traditionally used in time series analysis in that it is determined by change-points, and hence needs to be estimated from the data before it can be used. The resulting model enables easy simulation and provides interpretable decomposition of nonstationarity into short- and long-term components. The model permits consistent estimation of the multiscale change-point-induced basis via binary segmentation, which results in a variable-span moving-average estimator of the current trend, and allows for short-term forecasting of the average return.
|Date of creation:||2013|
|Date of revision:|
|Publication status:||Published in Statistics and Its Interface 6.4(2013): pp. 449-461|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- G. P. Nason & R. von Sachs & G. Kroisandt, 2000. "Wavelet processes and adaptive estimation of the evolutionary wavelet spectrum," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 62(2), pages 271-292.
- Pavel Cizek & Wolfgang Härdle & Vladimir Spokoiny, 2008.
"Adaptive pointwise estimation in time-inhomogeneous time-series models,"
SFB 649 Discussion Papers
SFB649DP2008-002, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Cizek, P. & Haerdle, W. & Spokoiny, V., 2007. "Adaptive Pointwise Estimation in Time-Inhomogeneous Time-Series Models," Discussion Paper 2007-35, Tilburg University, Center for Economic Research.
- Lee, Chung-Bow, 1995. "Estimating the number of change points in a sequence of independent normal random variables," Statistics & Probability Letters, Elsevier, vol. 25(3), pages 241-248, November.
- Jeremy Berkowitz & James O'Brien, 2002. "How Accurate Are Value-at-Risk Models at Commercial Banks?," Journal of Finance, American Finance Association, vol. 57(3), pages 1093-1111, 06.
- Pan, Jianmin & Chen, Jiahua, 2006. "Application of modified information criterion to multiple change point problems," Journal of Multivariate Analysis, Elsevier, vol. 97(10), pages 2221-2241, November.
- Piotr Fryzlewicz & Theofanis Sapatinas & Suhasini Subba Rao, 2006. "A Haar--Fisz technique for locally stationary volatility estimation," Biometrika, Biometrika Trust, vol. 93(3), pages 687-704, September.
- Leitch, Gordon & Tanner, J Ernest, 1991. "Economic Forecast Evaluation: Profits versus the Conventional Error Measures," American Economic Review, American Economic Association, vol. 81(3), pages 580-90, June.
- Hasabrouck, Joel & Sofianos, George, 1993. " The Trades of Market Makers: An Empirical Analysis of NYSE Specialists," Journal of Finance, American Finance Association, vol. 48(5), pages 1565-93, December.
- Hernando Ombao & Jonathan Raz & Rainer von Sachs & Wensheng Guo, 2002. "The SLEX Model of a Non-Stationary Random Process," Annals of the Institute of Statistical Mathematics, Springer, vol. 54(1), pages 171-200, March.
- Jushan Bai, 1995.
"Estimating Multiple Breaks One at a Time,"
95-18, Massachusetts Institute of Technology (MIT), Department of Economics.
- Fryzlewicz, Piotr, 2007. "Unbalanced Haar Technique for Nonparametric Function Estimation," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 1318-1327, December.
- P. Č�žek & W. H�rdle & V. Spokoiny, 2009. "Adaptive pointwise estimation in time-inhomogeneous conditional heteroscedasticity models," Econometrics Journal, Royal Economic Society, vol. 12(2), pages 248-271, 07.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:52379. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.