Questions tagged [auto-correlation]

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81 views

Why is the moving average called that way? [closed]

I am a beginner in time-series analysis. The moving average model uses past errors*parameter, so why is it called a moving average model? It seems counter-intuitive to me. The Auto-Regressive model ...
136 views

Does it make any sense to normalize returns?

I have been going through a course for Time Series Analysis. First we learned to make returns from a time-series of stock index by (Xt - Xt-1)/Xt-1 . This makes the series stationary, which means we ...
112 views

Persistence and stationarity together in volatility analysis

I am trying to analyse a time series. I want to get only quantitative results (so, I'm excluding things like "looking at this plot we can note..." or "as you can see in the chart ...&...
112 views

Calculate and study volatility time series

I am trying to study a time series. I have 10-year daily close prices for some stocks, so my time series is very simple: each day I have a close price for my company. The question is: how can I want ...
66 views

Examining the dependence of the fractional difference parameter in ARFIMA(0,d,0) vs bar size for Realized Volatility

Realized volatility is a long-memory process and so I fitted an ARFIMA(0,d,0) to log(RV15) where RV15 is realized volatility calculated from 15-min bars. I proceeded to examine how changing the bar ...
101 views

What about autocorrelation and heteroskedasticity in Fama French?

I am analysing ESG and conventional mutual funds. I decided to measure the extra performance of each category using the Fama French 4 factor model, but it seems to me that in previous literature they ...
49 views

Show that $\text{Cov}[X_r,X_s]=\text{Cov}[X_{r+h},X_{s+h}]$ for $X_t=a+bZ_t+cZ_{t-2}.$

Problem: Let $\{Zt\}$ be a sequence of independent normal random variables, each with mean $0$ and variance $\sigma^2$, and let $a$, $b$, and $c$ be constants. Is $X_t=a+bZ_t+cZ_{t-2}$ a (weakly) ...
117 views

Estimating distribution of rate of return

Let $f[t]$ be the price of a stock at time $t$. We can calculate the rolling rate of return of the stock in a window of length $n$ by computing: $$r[t] = \frac{f[t] - f[t-n]}{f[t-n]}$$ $r[t]$ is ...
71 views

CAPM: Testing for alphas jointly equal to zero

For my project, I need to assess if a certain factor X leads to a CAPM-Anomaly. First, I sorted the monthly stock return (sample size: 500+ observations) according to the X factor in 10 decile ...
54 views

Running an autocorrelation with blanks?

How does one run an autocorrelation when there are blanks in the dataset? I have a dataset of interest rates and I am plotting day x vs day x-1. I’m unable to run a correlation in Excel if there are ...
127 views

Variance of Log Returns

Consider an asset held for $n$ time periods with weakly stationary log-returns $r_t$, $1≤t≤n$. Show that $var(r_1 +r_2 +r_3 +r_4)=var(r_1 +r_2 +r_3)+var(r_1)(1+2ρ_3 +2ρ_2 +2ρ_1)$, where $ρ_k$ is the ...
73 views

Should a stock with high return autocorrelation be weighted more heavily in a portfolio?

Some say the presence of autocorrelation (aka serial correlation) in a stock's financial return time series helps with forecasting its next-day movements, unlike a stock that has low serial ...
71 views

Predictive power of lagged features [closed]

I have to build a classification model to predict recessions. I have selected a set of features (some are economic and some are financial). I have noticed that it is good pratice often to add to the ...
150 views

How to model financial HFT time-series data with multi scale autocorrelation

I work with tick level time-series univariate prices data. Tick level means that there are hundreds to thousands observations per second. The observations are timestamped, so one can use both wall ...
231 views

Monte Carlo simulations of correlated stocks by Geometric Brownian motion

I am trying to simulate using a Geometric Brownian Motion process three autocorrelated stocks. In particular, I need to simulate three different matrices with 1000 scenarios each using a Monte Carlo ...
239 views

Do EWMA weights remove autocorrelation in asset returns?

I know that the exponentially weighted moving average (EWMA) volatility estimator drapes a decaying weight function over historical returns in order to weight the past according to the decay of their ...
126 views

How to use autocorrelation plot to interpret time series data?

how can we use auto correlation plot or correlogram to interpret time series data? I have 6 different acf plots (a,b,c,d,e,f), from this 6 plots what kind of informations and patterns can I identify? ...
116 views

Turning a covariance sum into an integral

I am reading Lorenzo's Bergomi's book Stochastic Volatility Modeling, and I have come to this passage. I just would like to understand the derivation between the first and the second equality. I ...
112 views

Fama Macbeth and Momentum factor

I am working on a Fama MacBeth regression with excess returns on the LHS and Size, Value an Momentum factors on the RHS. In literature, the Momentum factor is often definded as the cumulative past 6 ...
76 views

Interpreting Autocorrelation as probability

I was recently asked: Given a random time series of 1s and -1s. Eg of a sample = [1, 1, 1, -1, -1, 1, -1,..]. The autocorrelation of this series is Z. What can you say about the probability of a 1(or ...
115 views

4k views

How is the MA (moving average model) useful?

How is the MA model useful in modeling financial data, for example the stock indices? For example, from what i understand in the AR (auto-regressive) model portion, we can use the ADF test to check ...
12k views

What does it mean by autocorrelation coefficient near 1?

It is said that the time series has a stochastic trend if the first autocorrelation coefficient will be near 1. Q1) What does it mean by the above statement? Q2) How do we calculate the first ...