Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models

Oelschläger L, Adam T (2021)
Statistical Modelling: 1471082X211034048.

Zeitschriftenaufsatz | E-Veröff. vor dem Druck | Englisch
 
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Abstract / Bemerkung
Financial markets exhibit alternating periods of rising and falling prices. Stock traders seeking to make profitable investment decisions have to account for those trends, where the goal is to accurately predict switches from bullish to bearish markets and vice versa. Popular tools for modelling financial time series are hidden Markov models, where a latent state process is used to explicitly model switches among different market regimes. In their basic form, however, hidden Markov models are not capable of capturing both short- and long-term trends, which can lead to a misinterpretation of short-term price fluctuations as changes in the long-term trend. In this article, we demonstrate how hierarchical hidden Markov models can be used to draw a comprehensive picture of market behaviour, which can contribute to the development of more sophisticated trading strategies. The feasibility of the suggested approach is illustrated in two real-data applications, where we model data from the Deutscher Aktienindex and the Deutsche Bank stock. The proposed methodology is implemented in the R package fHMM, which is available on CRAN.
Stichworte
decoding market behaviour; Hidden Markov models; state-space models; temporal resolution; time series modelling
Erscheinungsjahr
2021
Zeitschriftentitel
Statistical Modelling
Art.-Nr.
1471082X211034048
ISSN
1471-082X
eISSN
1477-0342
Page URI
https://pub.uni-bielefeld.de/record/2957037

Zitieren

Oelschläger L, Adam T. Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models. Statistical Modelling. 2021: 1471082X211034048.
Oelschläger, L., & Adam, T. (2021). Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models. Statistical Modelling, 1471082X211034048. https://doi.org/10.1177/1471082X211034048
Oelschläger, L., and Adam, T. (2021). Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models. Statistical Modelling:1471082X211034048.
Oelschläger, L., & Adam, T., 2021. Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models. Statistical Modelling, : 1471082X211034048.
L. Oelschläger and T. Adam, “Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models”, Statistical Modelling, 2021, : 1471082X211034048.
Oelschläger, L., Adam, T.: Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models. Statistical Modelling. : 1471082X211034048 (2021).
Oelschläger, Lennart, and Adam, Timo. “Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models”. Statistical Modelling (2021): 1471082X211034048.

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