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Adaptive trend estimation in financial time series via multiscale change-point-induced basis recovery

Anna Louise Schroeder and Piotr Fryzlewicz
Authors registered in the RePEc Author Service: Anna Louise Schröder ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Low-frequency financial returns can be modelled as centered around piecewise-constant trend functions which change at certain points in time. We propose a new stochastic time series framework which captures this feature. The main ingredient of our model is a hierarchically-ordered oscillatory basis of simple piecewise-constant functions. It differs from the Fourier-like bases traditionally used in time series analysis in that it is determined by change-points, and hence needs to be estimated from the data before it can be used. The resulting model enables easy simulation and provides interpretable decomposition of nonstationarity into short- and long-term components. The model permits consistent estimation of the multiscale change-point-induced basis via binary segmentation, which results in a variablespan moving-average estimator of the current trend, and allows for short-term forecasting of the average return.

JEL-codes: G0 (search for similar items in EconPapers)
Date: 2013-01
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Published in Statistics and Its Interface, January, 2013, 6(4), pp. 449-461. ISSN: 1938-7997

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Working Paper: Adaptive trend estimation in financial time series via multiscale change-point-induced basis recovery (2013) Downloads
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