Statistical Analysis Stack Exchange
Statistical Analysis Stack Exchange

Questions tagged [finance]

The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities.

Reference: Investopedia.com

"Finance consists of financial systems, which include the public, private and government spaces, and the study of finance and financial instruments, which can relate to countless assets and liabilities. Some prefer to divide finance into three distinct categories: public finance, corporate finance and personal finance. All three of which would contain many sub-categories.

The study of finance can also take many forms, depending on the field or area of finance which one wishes to study. For instance, economics is considered a pillar of financial science, where both macro and microeconomic factors affect virtually levels of financial decisions and outcomes at all levels. Additionally, the study of behavioral finance aims to study the more "human" side of a science considered by most to be highly mathematical. This illustrates that the study of finance can, at times, be more art than science."

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What is the difference between GARCH and ARMA?

I am confused. I don't understand the difference a ARMA and a GARCH process.. to me there are the same no ? Here is the (G)ARCH(p, q) process $$\sigma_t^2 = \underbrace{ \underbrace{ \alpha_0 + \sum_{i=1}^q \alpha_ir_{t-i}^2} …
John
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Why stock prices are lognormal but stock returns are normal

Except for the fact that returns can be negative while prices must be positive, is there any other reason behind modelling stock prices as a log normal distribution but modelling stock returns as a normal distribution?
Victor
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How to tell if girlfriend can tell the future (i.e. predict stocks)?

My girlfriend has recently gotten a job doing sales and trading at a major bank. Buoyed by her new job, she believes she can predict whether stocks will be up or down at the end of the month greater than chance (she believes she can even do it with…
Benjamin
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Usage of HMM in quantitative finance. Examples of HMM that works to detect trend / turning points?

I am discovering the marvellous world of such called "Hidden Markov Models", also called "regime switching models". I would like to adapt a HMM in R to detect trends and turning points. I would like to build the model as generic as possible so that…
RockScience
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Robust t-test for mean

I am trying to test the null $E[X] = 0$, against the local alternative $E[X] > 0$, for a random variable $X$, subject to mild to medium skew and kurtosis of the random variable. Following suggestions by Wilcox in 'Introduction to Robust Estimation…
shabbychef
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Is it a valid claim, that by differencing a time series, it loses its memory, and as a result its predictive power?

Marcos Lopez de Prado seems to be a well known and renowned machine learning expert in the field of finance. I am very far from his level, as have not yet finished my PhD in economics, and only have an applied level statistical knowledge. I have…
Betelgeux
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What is cross section in "cross section of stock return"?

Can somebody give the definition of cross section in "cross section of stock return"? Thanks
hung
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What machine learning algorithm can be used to predict the stock market?

Alternatively, to predict foreign exchange markets. I know this can get pretty complicated, so as an introduction, I'm looking for a simple prediction algorithm that has some accuracy. (It's for a M.Sc. university project that lasts four…
siamii
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Does applying ARMA-GARCH require stationarity?

I am going to use the ARMA-GARCH model for financial time series and was wondering whether the series should be stationary before applying the said model. I know to apply ARMA model the series should be stationary, however I'm not sure for…
ankc
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Irregularly spaced time-series in finance/economics research

In financial econometrics research, it is very common to investigate relationships between financial time series that take the form of daily data. The variable will often be made $I(0)$ by taking the log difference, for example;…
Jase
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Variance of annual return based on variance of monthly return

I'm trying to understand the whole variance/std error thing of a time series of financial returns, and I think I'm stuck. I have a series of monthly stock return data (let's call it $X$), which has expected value 1.00795, and variance 0.000228 (std.…
lyosef
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First steps learning to predict financial timeseries using machine learning

I am trying to get a grasp on how to use machine learning to predict financial timeseries 1 or more steps into the future. I have a financial timeseries with some descriptive data and I would like to form a model and then use the model to predict…
nikke
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What is Combinatorial Purged Cross-Validation for time series data?

I'm trying to understand the "Combinatorial Purged Cross-Validation" technique for time series data described in Marcos Lopez de Prado's "Advances in Financial Machine Learning" book (p. 163). The setup is described as the researcher wanting to test…
Ben Ogorek
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Good books/papers on credit scoring

I'm looking for recomendations of books on credit scoring. I'm interested in all aspects of this problem, but mostly in: 1) Good features. How to build them? Which have been proved to be good? 2) Neural networks. Their application to credit scoring…
Nya
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Is it a problem to get a negative adjusted r-squared?

Background: I have the cross-sectional model: $Y_{i} = a + b X_{1,i} + c X_{2,i} + d X_{3,i} + e X_{4,i} + \nu_i$. The application is corporate finance. So each $Y_i$ is something like the change in return on assets over a 1 year period for firm…
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