FORECASTING TRENDS WITH ASSET PRICES

Ahmed Belhadjayed (1) , Grégoire Loeper (2) , Frédéric Abergel (3)

1 FiQuant - Chaire de finance quantitative
2 School of Mathematical Sciences [Clayton]
3 MICS - Mathématiques et Informatique pour la Complexité et les Systèmes

The question of interest in this paper is the estimation of the trend of a financial asset, and the impact of its misspecification on investment strategies. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein-Uhlenbeck process. Motivated by the use of Kalman filtering as a forecasting tool, we address the problem of parameters estimation, and measure the effect of parameters mis-specification. Numerical examples illustrate the difficulty of trend forecasting in financial time series.

Domaines: Econométrie de la finance [q-fin.ST]; Finance quantitative [q-fin.CP]

Ahmed Belhadjayed, Grégoire Loeper, Frédéric Abergel. FORECASTING TRENDS WITH ASSET PRICES. Quantitative Finance, 2016, 17 (3), pp.369-382. ⟨10.1080/14697688.2016.1206959⟩. ⟨hal-01512431⟩