A mean-reverting strategy based on fuzzy transform residuals

This paper develops a stock market price model, which is based on a detrending time series by iterating the application of fuzzy trasform and computing residuls over a given lookback period. The model is used to define a mean-reverting strategy with stationary and gaussian residuals. A preliminary experimention is aimed at comparing the proposed strategy to well-established GARCH method.

[1]  C. Granger,et al.  Co-integration and error correction: representation, estimation and testing , 1987 .

[2]  J. Stock,et al.  Drawing Inferences from Statistics Based on Multi-Year Asset Returns , 1989 .

[3]  A. Richards,et al.  Winner-Loser Reversals in National Stock Market Indices: Can They Be Explained? , 1997, SSRN Electronic Journal.

[4]  Jakub W. Jurek,et al.  Dynamic Portfolio Selection in Arbitrage , 2007 .

[5]  Gautam Kaul,et al.  Time-Variation in Expected Returns , 1988 .

[6]  A. Lo,et al.  Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test , 1987 .

[7]  E. Fama,et al.  Permanent and Temporary Components of Stock Prices , 1988, Journal of Political Economy.

[8]  W. Fuller,et al.  Distribution of the Estimators for Autoregressive Time Series with a Unit Root , 1979 .

[9]  David Orden,et al.  Comparison of Box--Tiao and Johansen canonical estimators of cointegrating vectors in VEC(1) models , 1994 .

[10]  Luciano Stefanini.  Fuzzy Transform and Smooth Functions , 2009, IFSA/EUSFLAT Conf..

[11]  Wei Xiong,et al.  Convergence trading with wealth effects: an amplification mechanism in financial markets , 2001 .

[12]  Matthew Richardson,et al.  Temporary Components of Stock Prices: A Skeptic's View , 1993 .

[13]  Michael Spann,et al.  A new approach to clustering , 1990, Pattern Recognit..

[14]  DANELEE VAN DYK,et al.  A UNIFIED TRADING STRATEGY COMBINING TECHNICAL TRADING RULES AND TIME SERIES ECONOMETRICS , 2007 .

[15]  J. Poterba,et al.  Mean Reversion in Stock Prices: Evidence and Implications , 1987 .

[16]  C. Alexander,et al.  Optimal hedging using cointegration , 1999, Philosophical Transactions of the Royal Society of London. Series A: Mathematical, Physical and Engineering Sciences.

[17]  S. Johansen.  STATISTICAL ANALYSIS OF COINTEGRATION VECTORS , 1988 .

[18]  Ts Kim,et al.  Dynamic Nonmyopic Portfolio Behavior , 1994 .

[19]  Grant R. Mcqueen,et al.  Long-Horizon Mean-Reverting Stock Prices Revisited , 1992, Journal of Financial and Quantitative Analysis.

[20]  Yangru Wu,et al.  Mean Reversion across National Stock Markets and Parametric Contrarian Investment Strategies , 2000 .

[21]  William N. Goetzmann,et al.  Pairs Trading: Performance of a Relative Value Arbitrage Rule , 1998 .

[22]  Jessica A. Wachter.  Portfolio and Consumption Decisions under Mean-Reverting Returns: An Exact Solution for Complete Markets , 2001, Journal of Financial and Quantitative Analysis.

[23]  Irina Perfilieva,et al.  Fuzzy transforms: Theory and applications , 2006, Fuzzy Sets Syst..

[24]  G. C. Tiao,et al.  A canonical analysis of multiple time series , 1977 .

[25]  Richard Startz,et al.  Mean Reversion in Stock Prices? a Reappraisal of the Empirical Evidence , 1988 .

[26]  Luis M. Viceira,et al.  Consumption and Portfolio Decisions When Expected Returns are Time Varying , 1996 .

[27]  Luigi Troiano,et al.  Supporting trading strategies by inverse fuzzy transform , 2011, Fuzzy Sets Syst..

[28]  R. Thaler,et al.  Further Evidence On Investor Overreaction and Stock Market Seasonality , 1987 .

[29]  R. Thaler,et al.  Does the Stock Market Overreact , 1985 .

[30]  L. Summers.  Does the Stock Market Rationally Reflect Fundamental Values , 1986 .

[31]  Sanford J. Grossman,et al.  Optimal Dynamic Trading with Leverage Constraints , 1992, Journal of Financial and Quantitative Analysis.

[32]  Jun Liu,et al.  Losing Money on Arbitrage: Optimal Dynamic Portfolio Choice in Markets with Arbitrage Opportunities , 2000 .