De Angelis, Luca ; Paas, Leonard J.
(2010)
A dynamic analysis of stock markets using a latent Markov model.
[Preprint]
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Abstract
This paper proposes an innovative framework to detect financial crises, pinpoint the end of a crisis and predict future developments in stock markets. This proposal is based on a latent Markov model and allows for a specific focus on conditional mean returns. By analyzing weekly changes in the U.S. stock market indexes over a period of 20 years, this study obtains an accurate detection of stable and turmoil periods and a probabilistic measure of switching between different stock market conditions. The results contribute to the discussion of the capabilities of latent Markov models and give financial operators some appealing investment strategies.
Abstract
This paper proposes an innovative framework to detect financial crises, pinpoint the end of a crisis and predict future developments in stock markets. This proposal is based on a latent Markov model and allows for a specific focus on conditional mean returns. By analyzing weekly changes in the U.S. stock market indexes over a period of 20 years, this study obtains an accurate detection of stable and turmoil periods and a probabilistic measure of switching between different stock market conditions. The results contribute to the discussion of the capabilities of latent Markov models and give financial operators some appealing investment strategies.
Document type
Preprint
Creators
Keywords
Stock market pattern analysis; Regime-switching; Forecasting; Latent Markov model; Financial crises; Market stability periods
Subjects
DOI
Deposit date
25 Nov 2010 11:56
Last modified
16 May 2011 12:14
URI
Other metadata
Document type
Preprint
Creators
Keywords
Stock market pattern analysis; Regime-switching; Forecasting; Latent Markov model; Financial crises; Market stability periods
Subjects
DOI
Deposit date
25 Nov 2010 11:56
Last modified
16 May 2011 12:14
URI
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