The better turbulence index? Forecasting adverse financial markets regimes with persistent homology

IF 1.5 Q3 BUSINESS, FINANCE
Eduard Baitinger, Samuel Flegel
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引用次数: 0

Abstract

Persistent homology is the workhorse of modern topological data analysis, which in recent years becomes increasingly powerful due to methodological and computing power advances. In this paper, after equipping the reader with the relevant background on persistent homology, we show how this tool can be harnessed for investment purposes. Specifically, we propose a persistent homology-based turbulence index for the detection of adverse market regimes. With the help of an out-of-sample study, we demonstrate that investment strategies relying on a persistent homology-based turbulence detection outperform investment strategies based on other popular turbulence indices. Additionally, we conduct a stability analysis of our findings. This analysis confirms the results from the previous out-of-sample study, as the outperformance prevails for most configurations of the respective investment strategy and thereby mitigating possible data mining concerns.

更好的湍流指数?预测具有持续同源性的不利金融市场机制
持久同构是现代拓扑数据分析的主力,近年来由于方法和计算能力的进步,它变得越来越强大。在本文中,在为读者提供持久同源性的相关背景之后,我们将展示如何利用该工具进行投资。具体来说,我们提出了一个持久的基于同源性的湍流指数来检测不利的市场制度。在样本外研究的帮助下,我们证明了依赖于基于持续同构的湍流检测的投资策略优于基于其他流行湍流指数的投资策略。此外,我们对我们的发现进行了稳定性分析。这一分析证实了之前样本外研究的结果,因为各自投资策略的大多数配置都表现优异,从而减轻了可能的数据挖掘问题。
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来源期刊
CiteScore
3.20
自引率
0.00%
发文量
21
期刊介绍: The journal Financial Markets and Portfolio Management invites submissions of original research articles in all areas of finance, especially in – but not limited to – financial markets, portfolio choice and wealth management, asset pricing, risk management, and regulation. Its principal objective is to publish high-quality articles of innovative research and practical application. The readers of Financial Markets and Portfolio Management are academics and professionals in finance and economics, especially in the areas of asset management. FMPM publishes academic and applied research articles, shorter ''Perspectives'' and survey articles on current topics of interest to the financial community, as well as book reviews. All article submissions are subject to a double-blind peer review. http://www.fmpm.org Officially cited as: Financ Mark Portf Manag
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