Forecasting trends with asset prices

Ahmed Bel Hadj Ayed, Gregoire Loeper, Frédéric Abergel

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

The question of interest in this paper is the estimation of the trend of a financial asset, and the impact of its misspecification on investment strategies. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein–Uhlenbeck process. Motivated by the use of Kalman filtering as a forecasting tool, we address the problem of parameter estimation, and measure the effect of parameter misspecification. Numerical examples illustrate the difficulty of trend forecasting in financial time series.

Original languageEnglish
Pages (from-to)369-382
Number of pages14
JournalQuantitative Finance
Volume17
Issue number3
DOIs
Publication statusPublished - 2017

Keywords

  • Investment strategies
  • Kalman filter
  • Ornstein–Uhlenbeck process
  • Trend estimation

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