Exploring the Relationship among Predictability, Prediction Accuracy and Data Frequency of Financial Time Series
In this paper, we aim to reveal the connection between the predictability and prediction accuracy of stock closing price changes with different data frequencies. To find out whether data frequency will affect its predictability, a new information-theoretic estimator <inline-formula><math di...
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| Format: | Article |
| Language: | English |
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MDPI AG
2020-12-01
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| Series: | Entropy |
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| Online Access: | https://www.mdpi.com/1099-4300/22/12/1381 |
| _version_ | 1797416301981859840 |
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| author | Shuqi Li Aijing Lin |
| author_facet | Shuqi Li Aijing Lin |
| author_sort | Shuqi Li |
| collection | DOAJ |
| description | In this paper, we aim to reveal the connection between the predictability and prediction accuracy of stock closing price changes with different data frequencies. To find out whether data frequency will affect its predictability, a new information-theoretic estimator <inline-formula><math display="inline"><semantics><msub><mi>P</mi><mrow><mi>l</mi><mi>z</mi></mrow></msub></semantics></math></inline-formula>, which is derived from the Lempel–Ziv entropy, is proposed here to quantify the predictability of five-minute and daily price changes of the SSE 50 index from the Chinese stock market. Furthermore, the prediction method EEMD-FFH we proposed previously was applied to evaluate whether financial data with higher sampling frequency leads to higher prediction accuracy. It turns out that intraday five-minute data are more predictable and also have higher prediction accuracy than daily data, suggesting that the data frequency of stock returns affects its predictability and prediction accuracy, and that higher frequency data have higher predictability and higher prediction accuracy. We also perform linear regression for the two frequency data sets; the results show that predictability and prediction accuracy are positive related. |
| first_indexed | 2024-03-09T06:02:27Z |
| format | Article |
| id | doaj.art-88c2cbd3bd744000b8d82dc1aa4880fb |
| institution | Directory Open Access Journal |
| issn | 1099-4300 |
| language | English |
| last_indexed | 2024-03-09T06:02:27Z |
| publishDate | 2020-12-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Entropy |
| spelling | doaj.art-88c2cbd3bd744000b8d82dc1aa4880fb2023-12-03T12:08:08ZengMDPI AGEntropy1099-43002020-12-012212138110.3390/e22121381Exploring the Relationship among Predictability, Prediction Accuracy and Data Frequency of Financial Time SeriesShuqi Li0Aijing Lin1School of Science, Beijing Jiaotong University, Beijing 100044, ChinaSchool of Science, Beijing Jiaotong University, Beijing 100044, ChinaIn this paper, we aim to reveal the connection between the predictability and prediction accuracy of stock closing price changes with different data frequencies. To find out whether data frequency will affect its predictability, a new information-theoretic estimator <inline-formula><math display="inline"><semantics><msub><mi>P</mi><mrow><mi>l</mi><mi>z</mi></mrow></msub></semantics></math></inline-formula>, which is derived from the Lempel–Ziv entropy, is proposed here to quantify the predictability of five-minute and daily price changes of the SSE 50 index from the Chinese stock market. Furthermore, the prediction method EEMD-FFH we proposed previously was applied to evaluate whether financial data with higher sampling frequency leads to higher prediction accuracy. It turns out that intraday five-minute data are more predictable and also have higher prediction accuracy than daily data, suggesting that the data frequency of stock returns affects its predictability and prediction accuracy, and that higher frequency data have higher predictability and higher prediction accuracy. We also perform linear regression for the two frequency data sets; the results show that predictability and prediction accuracy are positive related.https://www.mdpi.com/1099-4300/22/12/1381entropy ratepredictabilityentropy differencefinancial time series |
| spellingShingle | Shuqi Li Aijing Lin Exploring the Relationship among Predictability, Prediction Accuracy and Data Frequency of Financial Time Series Entropy entropy rate predictability entropy difference financial time series |
| title | Exploring the Relationship among Predictability, Prediction Accuracy and Data Frequency of Financial Time Series |
| title_full | Exploring the Relationship among Predictability, Prediction Accuracy and Data Frequency of Financial Time Series |
| title_fullStr | Exploring the Relationship among Predictability, Prediction Accuracy and Data Frequency of Financial Time Series |
| title_full_unstemmed | Exploring the Relationship among Predictability, Prediction Accuracy and Data Frequency of Financial Time Series |
| title_short | Exploring the Relationship among Predictability, Prediction Accuracy and Data Frequency of Financial Time Series |
| title_sort | exploring the relationship among predictability prediction accuracy and data frequency of financial time series |
| topic | entropy rate predictability entropy difference financial time series |
| url | https://www.mdpi.com/1099-4300/22/12/1381 |
| work_keys_str_mv | AT shuqili exploringtherelationshipamongpredictabilitypredictionaccuracyanddatafrequencyoffinancialtimeseries AT aijinglin exploringtherelationshipamongpredictabilitypredictionaccuracyanddatafrequencyoffinancialtimeseries |