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Capabilities of Statistical Residual-Based Control Charts in Short- and Long-Term Stock Trading

Author

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  • Žmuk Berislav

    (Faculty of Economics and Business, University of Zagreb, Croatia)

Abstract

The aim of this paper is to introduce and develop additional statistical tools to support the decision-making process in stock trading. The prices of CROBEX10 index stocks on the Zagreb Stock Exchange were used in the paper. The conducted trading simulations, based on the residual-based control charts, led to an investor’s profit in 67.92% cases. In the short run, the residual-based cumulative sum (CUSUM) control chart led to the highest portfolio profits. In the long run, when average stock prices were used and 2-sigma control limits set, the residual-based exponential weighted moving average control chart had the highest portfolio profit. In all other cases in the long run, the CUSUM control chart appeared to be the best choice. The acknowledgment that the SPC methods can be successfully used in stock trading will, hopefully, increase their use in this field.

Suggested Citation

  • Žmuk Berislav, 2016. "Capabilities of Statistical Residual-Based Control Charts in Short- and Long-Term Stock Trading," Naše gospodarstvo/Our economy, Sciendo, vol. 62(1), pages 12-26, March.
    • Handle: RePEc:vrs:ngooec:v:62:y:2016:i:1:p:12-26:n:2
    DOI: 10.1515/ngoe-2016-0002
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    References listed on IDEAS

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    More about this item

    Keywords

    Zagreb Stock Exchange; investments; statistical process control; autocorrelation; residual-based control charts;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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