Testing of Market Price Direction Dependence on US Stock Market
Bohumil Stádník (The University of Economics in Prague, Czech Republic)
Abstract
The correct model of a liquid financial market is very important for all market activities including for example a stock or bond portfolio management or an asset valuation. Dynamic Financial Market Model is a comprehensive model with a detailed
interpretation. The model considers also feedback processes which cause price development direction dependence on the previous development. This is why it is also able to explain departures from normality as leptokurtic deformations with fat tails and sharpness, extreme values or skewness in the returns’ probability distributions. These departures are commonly explained using a wide range of models with volatility dependence. The question is then arising, whether the volatility or direction dependence is more in accordance with reality.
Price Inertia Feedback is one of the most important and has a direct impact on probability distribution and also on a price forecasting. Empirical measurement of this feedback is the core of the paper.
interpretation. The model considers also feedback processes which cause price development direction dependence on the previous development. This is why it is also able to explain departures from normality as leptokurtic deformations with fat tails and sharpness, extreme values or skewness in the returns’ probability distributions. These departures are commonly explained using a wide range of models with volatility dependence. The question is then arising, whether the volatility or direction dependence is more in accordance with reality.
Price Inertia Feedback is one of the most important and has a direct impact on probability distribution and also on a price forecasting. Empirical measurement of this feedback is the core of the paper.
Article in:
English
Article published:
2012-12-20
Keyword(s): Dynamic Financial Market Model; departures from normality; leptokurtic returns distribution; sharpness; skewness; feedbacks on financial market; price inertia feedback; dependence; dynamic system; simulation; back testing; S&P 500 Index
DOI: 10.3846/bme.2012.15
Cited-By
1. Market Price Forecasting and Profitability – How to Tame Mrandom Walk?
Bohumil Stádník
Verslas: teorija ir praktika vol: 14 issue: 2 first page: 166 year: 2013
doi: 10.3846/btp.2013.18
Business, Management and Education ISSN 2029-7491, eISSN 2029-6169
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 License.