Forecasting and trading strategies based on a price trend model

Josephine W. C. KWAN, K. LAM, Mike K. P. SO, Leung Ho Philip YU

Research output: Contribution to journalArticles

1 Citation (Scopus)

Abstract

In this paper, we consider the price trend model in which it is assumed that the time series of a security's prices contain a stochastic trend component which remains constant on each of a sequence of time intervals, with each interval having random duration. A quasi‐maximum likelihood method is used to estimate the model parameters. Optimal one‐step‐ahead forecasts of returns are derived. The trading rule based on these forecasts is constructed and is found to bear similarity to a popular trading rule based on moving averages. When applying the methods to forecast the returns of the Hang Seng Index Futures in Hong Kong, we find that the performance of the newly developed trading rule is satisfactory. Copyright © 2000 John Wiley & Sons, Ltd.
Original languageEnglish
Pages (from-to)485-498
JournalJournal of Forecasting
Volume19
Issue number6
DOIs
Publication statusPublished - Nov 2000

Citation

Kwan, J. W. C., Lam, K., So, M. K. P., & Yu, P. L. H. (2000). Forecasting and trading strategies based on a price trend model. Journal of Forecasting, 19(6), 485-498. doi: 10.1002/1099-131X(200011)19:6<485::AID-FOR759>3.0.CO;2-P

Keywords

  • Forecasting
  • Moving averages
  • Price trend model
  • Trading rules

Fingerprint Dive into the research topics of 'Forecasting and trading strategies based on a price trend model'. Together they form a unique fingerprint.