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Forecasting Trends With Asset Prices

Author

Listed:
  • Ahmed Belhadjayed

    (FiQuant - Chaire de finance quantitative - MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec)

  • Grégoire Loeper

    (School of Mathematical Sciences [Clayton] - Monash University [Clayton])

  • Frédéric Abergel

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec)

Abstract

The question of interest in this paper is the estimation of the trend of a financial asset, and the impact of its misspecification on investment strategies. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein-Uhlenbeck process. Motivated by the use of Kalman filtering as a forecasting tool, we address the problem of parameters estimation, and measure the effect of parameters mis-specification. Numerical examples illustrate the difficulty of trend forecasting in financial time series.

Suggested Citation

  • Ahmed Belhadjayed & Grégoire Loeper & Frédéric Abergel, 2016. "Forecasting Trends With Asset Prices," Post-Print hal-01512431, HAL.
    • Handle: RePEc:hal:journl:hal-01512431
    DOI: 10.1080/14697688.2016.1206959
    Note: View the original document on HAL open archive server: https://hal.science/hal-01512431
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