Timing the Stock Market. Richard E. Neapolitan Professor and Chair of Computer Science Northeastern Illinois University Slides available at: http://www.neiu.edu/~reneapol/renpag1.htm. Stock Market Review. Corporations sell shares of the company to the public.
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Richard E. Neapolitan
Professor and Chair of Computer Science
Northeastern Illinois University
Slides available at:
Go up one unit after a heads.
Go down one unit after a tails.
Eight random walks:
Factor models give the value of a stock at the end of a month as a function of the values of macroeconomic variables at the end of the month.
ri(t) = ři(t) + bi1f1(t) + bi2f2(t) + bi3f3(t) + bi4f4(t) + bi5fk(t) + εi(t)
ri(t) is the monthly return of asset i at the end of month t.
ři(t) is the expected return of asset i at the end of month t.
bik is the risk exposure of asset i to factor k.
[S&P(t+1) – S&P(t)] / S&P(t)
[S&P(t) – S&P(t-1)] / S&P(t-1)
[10T(t) – 10T(t-1)] / 10T(t)
[NFP(t) – NFP(t-1)] / NFP(t-1)
[Fed(t) – Fed(t-1)] / Fed(t -1)
A complex momentum indicator
= [10T(t-3) + 10(t-2) + 10(t-1)] / 3
[10T(t) –3monthavg10T(t)] / 3monthavg10T(t)
By analyzing many different markets (foreign exchanges, commodities, real estate, etc.), we can always bet only on very promising prospects.
My new book
Probabilistic Methods for Financial and Marketing informatics
is now available.