In this paper we model the discretized returns of two paired time series BM&FBOVESPA Dividend Index and BM&FBOVESPA Public Utilities Index using multivariate Markov models. The discretization corresponds to three categories, high losses, high profits and the complementary periods of the series. In technical terms, the maximal memory that can be considered for a Markov model, can be derived from the size of the alphabet and dataset. The number of parameters needed to specify a discrete multivariate Markov chain grows exponentially with the order and dimension of the chain. In this case the size of the database is not large enough for a consistent estimation of the model. We apply a strategy to estimate a multivariate process with an order greater than the order achieved using standard procedures. The new strategy consist on obtaining a partition of the state space which is constructed from a combination, of the partitions corresponding to the two marginal processes and the partition corresponding to the multivariate Markov chain. In order to estimate the transition probabilities, all the partitions are linked using a copula. In our application this strategy provides a significant improvement in the movement predictions.
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8 June 2016
INTERNATIONAL CONFERENCE OF NUMERICAL ANALYSIS AND APPLIED MATHEMATICS 2015 (ICNAAM 2015)
22–28 September 2015
Rhodes, Greece
Research Article|
June 08 2016
Copula-based prediction of economic movements
J. E. García;
J. E. García
*
University of Campinas
, Sergio Buarque de Holanda, 651, Campinas, S.P., CEP: 13083-859, Brazil
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V. A. González-López;
V. A. González-López
*
University of Campinas
, Sergio Buarque de Holanda, 651, Campinas, S.P., CEP: 13083-859, Brazil
Search for other works by this author on:
I. D. Hirsh
I. D. Hirsh
†
BM&FBOVESPA
, Praça Antônio Prado, 48, S.P., CEP: 01010-010, Brazil
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J. E. García
1
V. A. González-López
1
I. D. Hirsh
2
*
University of Campinas
, Sergio Buarque de Holanda, 651, Campinas, S.P., CEP: 13083-859, Brazil
†
BM&FBOVESPA
, Praça Antônio Prado, 48, S.P., CEP: 01010-010, Brazil
AIP Conf. Proc. 1738, 140005 (2016)
Citation
J. E. García, V. A. González-López, I. D. Hirsh; Copula-based prediction of economic movements. AIP Conf. Proc. 8 June 2016; 1738 (1): 140005. https://doi.org/10.1063/1.4951928
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