Title :
An Application of CUSUM Chart on Financial Trading
Author :
Ling Xin ; Yu, Philip L. H. ; Kin Lam
Author_Institution :
Fac. of Manage. & Adm., Macau Univ. of Sci. & Technol., Macau, China
Abstract :
The applications of CUSUM quality control chart to financial markets is not new in literature. It has been shown that the filter trading rule is mathematically equivalent to the CUSUM quality control test as both are based on change point detection theory. Filter trading rule has been extensively studied in the field of testing the financial market efficiency. In this paper, we studied the filter trading rule under a model assumption of Markov switching model (MSM) which has become very popular in financial applications. From our studies, it is found that the filter trading rule may beat the buy-and-hold strategy when the two-regime MSM fit the asset returns well.
Keywords :
Markov processes; control charts; quality control; stock markets; CUSUM quality control chart; CUSUM quality control test; Markov switching model; asset returns; buy-and-hold strategy; change point detection theory; filter trading rule; financial markets; financial trading; two-regime MSM; Control charts; Filtering theory; Hidden Markov models; Indexes; Markov processes; Standards; Switches; CUSUM chart; Markov switching model; filter trading rule;
Conference_Titel :
Computational Intelligence and Security (CIS), 2013 9th International Conference on
Conference_Location :
Leshan
Print_ISBN :
978-1-4799-2548-3
DOI :
10.1109/CIS.2013.44
