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 journalArticlespeer-review

1 Citation (Scopus)


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
Issue number6
Publication statusPublished - Nov 2000


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


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


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