Generalized Exponential Moving Average (EMA) Model with Particle Filtering and Anomaly Detection

Masafumi Nakano, Akihiko Takahashi and Soichiro Takahashi
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Masafumi Nakano: Graduate School of Economics, The University of Tokyo
Akihiko Takahashi: Faculty of Economics, The University of Tokyo
Soichiro Takahashi: Graduate School of Economics, The University of Tokyo

No CIRJE-F-1036, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper proposes a generalized exponential moving average (EMA) model, a new stochastic volatility model with time-varying expected return in nancial markets. In par- ticular, we effectively apply a particle lter (PF) to sequential estimation of states and parameters in a state space framework. Moreover, we develop three types of anomaly detec- tors, which are implemented easily in the PF algorithm to be used for investment decision. As a result, a simple investment strategy with our scheme is superior to the one based on the standard EMA and well-known traditional strategies such as equally-weighted, minimum- variance and risk parity portfolios. Our dataset is monthly total returns of global nancial assets such as stocks, bonds and REITs, and investment performances are evaluated with various statistics, namely compound returns, Sharpe ratios, Sortino ratios and drawdowns.

Pages: 27 pages
Date: 2016-12
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2016cf1036

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