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Investigating market efficiency through a forecasting model based on differential equations

Author

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  • de Resende, Charlene C.
  • Pereira, Adriano C.M.
  • Cardoso, Rodrigo T.N.
  • de Magalhães, A.R. Bosco

Abstract

A new differential equation based model for stock price trend forecast is proposed as a tool to investigate efficiency in an emerging market. Its predictive power showed statistically to be higher than the one of a completely random model, signaling towards the presence of arbitrage opportunities. Conditions for accuracy to be enhanced are investigated, and application of the model as part of a trading strategy is discussed.

Suggested Citation

  • de Resende, Charlene C. & Pereira, Adriano C.M. & Cardoso, Rodrigo T.N. & de Magalhães, A.R. Bosco, 2017. "Investigating market efficiency through a forecasting model based on differential equations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 474(C), pages 199-212.
    • Handle: RePEc:eee:phsmap:v:474:y:2017:i:c:p:199-212
    DOI: 10.1016/j.physa.2017.01.057
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