Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets
In the present paper, we review the use of two-state, Generalized Auto Regressive Conditionally Heteroskedastic Markovian stochastic processes (MS-GARCH). These show the quantitative model of an active stock trading algorithm in the three main Latin-American stock markets (Brazil, Chile, and Mexico)...
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| Format: | Article |
| Language: | English |
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MDPI AG
2020-06-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/8/6/942 |
| _version_ | 1827715402731356160 |
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| author | Oscar V. De la Torre-Torres Evaristo Galeana-Figueroa José Álvarez-García |
| author_facet | Oscar V. De la Torre-Torres Evaristo Galeana-Figueroa José Álvarez-García |
| author_sort | Oscar V. De la Torre-Torres |
| collection | DOAJ |
| description | In the present paper, we review the use of two-state, Generalized Auto Regressive Conditionally Heteroskedastic Markovian stochastic processes (MS-GARCH). These show the quantitative model of an active stock trading algorithm in the three main Latin-American stock markets (Brazil, Chile, and Mexico). By backtesting the performance of a U.S. dollar based investor, we found that the use of the Gaussian MS-GARCH leads, in the Brazilian market, to a better performance against a buy and hold strategy (BH). In addition, we found that the use of t-Student MS-ARCH models is preferable in the Chilean market. Lastly, in the Mexican case, we found that is better to use Gaussian time-fixed variance MS models. Their use leads to the best overall performance than the BH portfolio. Our results are of use for practitioners by the fact that MS-GARCH models could be part of quantitative and computer algorithms for active trading in these three stock markets. |
| first_indexed | 2024-03-10T19:17:35Z |
| format | Article |
| id | doaj.art-103bdf18432e44f48e3a552bb80aece2 |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-10T19:17:35Z |
| publishDate | 2020-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-103bdf18432e44f48e3a552bb80aece22023-11-20T03:11:46ZengMDPI AGMathematics2227-73902020-06-018694210.3390/math8060942Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock MarketsOscar V. De la Torre-Torres0Evaristo Galeana-Figueroa1José Álvarez-García2Faculty of Accounting and Management, Saint Nicholas and Hidalgo Michoacán State University (UMSNH), 58030 Morelia, MexicoFaculty of Accounting and Management, Saint Nicholas and Hidalgo Michoacán State University (UMSNH), 58030 Morelia, MexicoFinancial Economy and Accounting Department, Faculty of Business, Finance and Tourism, University of Extremadura, 10071 Cáceres, SpainIn the present paper, we review the use of two-state, Generalized Auto Regressive Conditionally Heteroskedastic Markovian stochastic processes (MS-GARCH). These show the quantitative model of an active stock trading algorithm in the three main Latin-American stock markets (Brazil, Chile, and Mexico). By backtesting the performance of a U.S. dollar based investor, we found that the use of the Gaussian MS-GARCH leads, in the Brazilian market, to a better performance against a buy and hold strategy (BH). In addition, we found that the use of t-Student MS-ARCH models is preferable in the Chilean market. Lastly, in the Mexican case, we found that is better to use Gaussian time-fixed variance MS models. Their use leads to the best overall performance than the BH portfolio. Our results are of use for practitioners by the fact that MS-GARCH models could be part of quantitative and computer algorithms for active trading in these three stock markets.https://www.mdpi.com/2227-7390/8/6/942Markov-SwitchingMarkov-Switching GARCHMarkovian chainalgorithmic tradingactive stock tradingactive investment |
| spellingShingle | Oscar V. De la Torre-Torres Evaristo Galeana-Figueroa José Álvarez-García Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets Mathematics Markov-Switching Markov-Switching GARCH Markovian chain algorithmic trading active stock trading active investment |
| title | Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets |
| title_full | Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets |
| title_fullStr | Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets |
| title_full_unstemmed | Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets |
| title_short | Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets |
| title_sort | markov switching stochastic processes in an active trading algorithm in the main latin american stock markets |
| topic | Markov-Switching Markov-Switching GARCH Markovian chain algorithmic trading active stock trading active investment |
| url | https://www.mdpi.com/2227-7390/8/6/942 |
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