An Application of CUSUM Chart on Financial Trading

Author

Ling Xin ; Yu, Philip L. H. ; Kin Lam

Author_Institution

Fac. of Manage. & Adm., Macau Univ. of Sci. & Technol., Macau, China

fYear

2013

fDate

14-15 Dec. 2013

Firstpage

178

Lastpage

181

Abstract

The applications of CUSUM quality control chart to financial markets is not new in literature. It has been shown that the filter trading rule is mathematically equivalent to the CUSUM quality control test as both are based on change point detection theory. Filter trading rule has been extensively studied in the field of testing the financial market efficiency. In this paper, we studied the filter trading rule under a model assumption of Markov switching model (MSM) which has become very popular in financial applications. From our studies, it is found that the filter trading rule may beat the buy-and-hold strategy when the two-regime MSM fit the asset returns well.

Keywords

Markov processes; control charts; quality control; stock markets; CUSUM quality control chart; CUSUM quality control test; Markov switching model; asset returns; buy-and-hold strategy; change point detection theory; filter trading rule; financial markets; financial trading; two-regime MSM; Control charts; Filtering theory; Hidden Markov models; Indexes; Markov processes; Standards; Switches; CUSUM chart; Markov switching model; filter trading rule;

fLanguage

English

Publisher

ieee

Conference_Titel

Computational Intelligence and Security (CIS), 2013 9th International Conference on

Conference_Location

Leshan

Print_ISBN

978-1-4799-2548-3

Type

conf

DOI

10.1109/CIS.2013.44

Filename

6746380