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A Prediction Methodology for the Change of the Values of Financial Products

Author

Listed:
  • Kyoung-SookMOON

    (Gachon University)

  • Heejean KIM

    (CK Goldilocks Asset Management)

  • Hongjoong KIM

    (Korea University)

Abstract

A systematic algorithm based on data smoothing and the Bayes' theorem is proposed to predict the increase or decrease of a financial time series, which can be used in trading financial products when decisions need to be made between long and short positions. The algorithm compares the observed product values with those in the history to find a similar pattern with the maximum likelihood, based on which future up-down movement of the value is predicted. Empirical studies with S&P 500 Index and stocks of several companies show that the proposed methodology improves the rate of the correct predictions by about 30% or more, relative to naive prior probability or moving average convergence divergence predictions.

Suggested Citation

  • Kyoung-SookMOON & Heejean KIM & Hongjoong KIM, 2017. "A Prediction Methodology for the Change of the Values of Financial Products," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 51(3), pages 197-210.
    • Handle: RePEc:cys:ecocyb:v:50:y:2017:i:3:p:197-210
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    References listed on IDEAS

    as
    1. Andreas Karathanasopoulos & Konstantinos Athanasios Theofilatos & Georgios Sermpinis & Christian Dunis & Sovan Mitra & Charalampos Stasinakis, 2016. "Stock market prediction using evolutionary support vector machines: an application to the ASE20 index," The European Journal of Finance, Taylor & Francis Journals, vol. 22(12), pages 1145-1163, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    financial time series; numerical prediction method; empirical study; Bayes' theorem; maximum likelihood estimation; smoothing.;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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