Algorithmic Trading Using Markov Chains: Comparing Empirical and Theoretical Yields

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F49777513%3A23510%2F16%3A43929998" target="_blank" >RIV/49777513:23510/16:43929998 - isvavai.cz</a>

Result on the web

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DOI - Digital Object Identifier

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Result language

angličtina

Original language name

Algorithmic Trading Using Markov Chains: Comparing Empirical and Theoretical Yields

Original language description

This study is focused on comparing empirical and theoretical yield of business strategies applied to stock markets. We continue in our previous articles in which we deal with the short-term prediction of stock markets and with creating business strategies using Markov Chains analysis. When defining a state space we assume that the stock price moves in three types of trends: primary, secondary and minor. The object of our interest is a minor trend which usually lasts for several days. During this trend the stock price accumulates a certain profit or loss in relation to the price at the beginning of the trend. The state space is defined by the size of the accumulated profit or loss. Business strategies are formed in the way that the states in which the stock price decreases generate buying signals and the states in which the stock price increases generate selling signals. Theoretical profitability of a business strategy is modeled on the basis of a matrix of transition between states probability, a matrix of evaluation of these transitions and the expected number of transactions. We calculate the parameters of this model, as well as empirical profitability, with historical data of CEZ stock during the ten years period from early 2006 to the end of 2015. In some cases empirical and theoretical results were nearly the same, in other cases they differed significantly.

Czech name

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Czech description

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Type

D - Article in proceedings

CEP classification

IN - Informatics

OECD FORD branch

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Project

<a href="/en/project/GA15-20405S" target="_blank" >GA15-20405S: Modelling of processes on financial markets and prediction of firm default by real options</a><br>

Continuities

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year

2016

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Article name in the collection

EUROPEAN FINANCIAL SYSTEM 2016: PROCEEDINGS OF THE 13TH INTERNATIONAL SCIENTIFIC CONFERENCE

ISBN

978-80-210-8308-0

ISSN

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e-ISSN

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Number of pages

7

Pages from-to

787-793

Publisher name

Masaryk University

Place of publication

Brno

Event location

Brno

Event date

Jun 27, 2016

Type of event by nationality

EUR - Evropská akce

UT code for WoS article

000385692200104