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Adaptive trend estimation in financial time series via multiscale change-point-induced basis recovery

Schroeder, Anna Louise and Fryzlewicz, Piotr (2013) Adaptive trend estimation in financial time series via multiscale change-point-induced basis recovery. Statistics and Its Interface, 6 (4). pp. 449-461. ISSN 1938-7997

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Abstract

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 variablespan moving-average estimator of the current trend, and allows for short-term forecasting of the average return.

Item Type: Article
Official URL: http://dx.doi.org/10.4310/SII.2013.v6.n4.a4
Additional Information: © 2013 International Press of Boston, Inc.
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics
JEL classification: G - Financial Economics > G0 - General
Sets: Departments > Statistics
Date Deposited: 16 Dec 2013 14:00
Last Modified: 16 Apr 2018 08:23
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/54934

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