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How much noise is at NYSE?

How much noise is at NYSE?. Krzysztof Urbanowicz and Janusz A. Hołyst Faculty of Physics and Centre of Excellence for Complex Systems Research, Warsaw University of Technology. w hat do we try to estimate ?. time series - {x n } (n=1,...,N) noise -  n (n=1,...,N)

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How much noise is at NYSE?

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  1. How much noise is at NYSE? Krzysztof Urbanowicz and Janusz A. Hołyst Faculty of Physics and Centre of Excellence for Complex Systems Research, Warsaw University of Technology

  2. what do we try to estimate ? • time series - {xn} (n=1,...,N) • noise - n (n=1,...,N) • measurement noise in the system  • dynamical noise in the system  • Find  

  3. the entropy dependence on noise • In order to find the noise level we use dependence observable coarse-grained correlation entropy: Knoisy() on standard deviation of noise 

  4. Diagonal lines ! Time series and recurrence plots for deterministic chaos (Henon map, above ) and a stochastic process (below)

  5. influence of noise • the coarse grained correlation entropy can be calculated from the number of diagonal lines DETn() of the length longer than n by the threshold parmeter  • noise enlarge the observed entropy

  6. Fitting measured coarse-grained entropy to analytic curves

  7. NTS definition • NTS is defined as the standard deviation of noise divided by standard deviation of data

  8. R2 Op-Amp V1 Chua Oscilator R3 Channel 1 NL L C2 C1 V2 R4

  9. results for the Chua circuit

  10. Application to financial data

  11. Returns definition • Pi – price at time i • Return Ri is defined as follows

  12. Noise estimation for NYSE stocks

  13. Correlation NTS and returns • (NTS,R) – correlation between NTSi and Ri • <R> - average value of R • we have found that

  14. Correlation for NYSE

  15. Application to Stock Market • We apply noise level estimations for investment strategy developing. The strategy brings around 15% annual profit.

  16. Conclusions • Using a coarse grained entropy we estimated the noise level in economic data • NTS ranges from 75%(IBM) to 93% (Bank of America) • Estimated NTS can be used for portoflio optimalization

  17. Thanks for collaboration to: • Hartmut Benner and Thoms Stemler (Chua circuit) • Dirk Helbing (economic data)

  18. References: Noise-level estimation of time series using coarse-grained entropy, Krzysztof Urbanowicz and Janusz A. Hołyst PHYSICAL REVIEW E 67, 046218 ~2003 Investment strategy due to minimization of portofolio noise level by observations of coarse-grained entropy Krzysztof Urbanowicz and Janusz A. HołystProceedings of APFA4, Physica A 2004 (in print)

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