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政大典藏 > College of Commerce > Department of Money and Banking > Periodical Articles > Item 140.119/64934

Please use this identifier to cite or link to this item: https://nccur.lib.nccu.edu.tw/handle/140.119/64934

Title:	Application of Hidden Markov Switching Moving Average Model in Stock Markets: Theory and Empirical Evidence
Authors:	Lin, Shih-Kuei;Wang, S. Y.;Tsai, P. L. 林士貴
Contributors:	金融系
Keywords:	Stock return mean reversion;Hidden Markov chains;Moving average;EM algorithm
Date:	2009-03
Issue Date:	2014-03-27 10:00:07 (UTC+8)
Abstract:	In this paper, we propose a hidden Markov switching moving average model (MS-MA model) to extend the moving average model when the dynamic process of stock returns is predictable. That is, hidden Markov chain can be utilized to better describe the stock return dynamics when moving averages are correlated. Based on the MS-MA model, a recursive method of EM algorithm for parameter estimation is proposed and a numerical analysis is demonstrated. Furthermore, we empirically test the hidden Markov chain model using Dow Jones thirty stocks` data. The empirical results show that the dynamic process of stock returns exhibits MS-MA property, meaning the moving averages of stock returns are correlated. Therefore, the MS-MA model allows us to better understand and to predict stock return stochastic process. This model also helps in pricing equity derivatives.
Relation:	International Review of Economics and Finance,18(2), 306-317
Data Type:	article
DOI link:	http://dx.doi.org/10.1016/j.iref.2008.06.010
DOI:	10.1016/j.iref.2008.06.010
Appears in Collections:	[Department of Money and Banking] Periodical Articles

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