Financial markets: very noisy information processing

Author

Magdon-Ismail, Malik ; Nicholson, Alexander ; Abu-Mostafa, Yaser S.

Author_Institution

Learning Syst. Group, California Inst. of Technol., Pasadena, CA, USA

Volume

86

Issue

11

fYear

1998

fDate

11/1/1998 12:00:00 AM

Firstpage

2184

Lastpage

2195

Abstract

We report new results about the impact of noise on information processing with application to financial markets. These results quantify the trade-off between the amount of data and the noise level in the data. They also provide estimates for the performance of a learning system in terms of the noise level. We use these results to derive a method for detecting the change in market volatility from period to period. We successfully apply these results to the four major foreign exchange markets. The results hold for linear as well as nonlinear learning models and algorithms and for different noise models

Keywords

convergence; financial data processing; foreign exchange trading; learning systems; noise; time series; bank; convergence; financial markets; foreign exchange; learning system; market volatility; noise level; noise models; noisy information processing; time series; Change detection algorithms; Convergence; Data mining; Economic forecasting; Information processing; Instruments; Learning systems; Noise level; Testing; Working environment noise;

fLanguage

English

Journal_Title

Proceedings of the IEEE

Publisher

ieee

ISSN

0018-9219

Type

jour

DOI

10.1109/5.726786

Filename

726786