# Questions tagged [forecasting]

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20 views

### Forecast dates and related actions

My question is quite general and is about the coherence between forecast horizon, then forecast dates, and related actions. As example we can keep in mind the asset allocation problem. It seems me ...
56 views

### Excel formula for Laplace distribution

I am trying to create a forecast model, projecting the number of passengers through an airport over a period of time (daily, weekly, and monthly). I've already used Excel's FORECAST and POISSON ...
75 views

### Can variance change over time?

I'm working on a toy project that involves fantasy basketball, I know this is the quantitative finance stackexchange, but it seemed like the best place to ask this question. My goal is to make ...
192 views

### Can someone explain rigorously Taleb's criticism of Nate Silver's election forecasting?

Taleb makes the claim in this paper (and others) that there exists some sort of bound on the variance of a binary forecast such that if a forecaster's binary predictions exceed the bounds on variance ...
49 views

### Portfolio allocation methods based on returns forecast

I have a model that predicts asset returns, and I would like to perform asset allocation based on these forecasts. I have already done Maximum Sharpe Ratio, and I plan on using Black Litterman model ...
80 views

### How can I forecast the Exponential Moving Average of the next day?

I am trying to forecast prices with exponential moving average method. The equation for EMA = [(Closing * k) + (EMA(y) * (1-k)] where: Closing is closing price of today, k is the weighted multiplier, ...
91 views

### Exponential Smoothing - Alpha greater than 1

Simple stats question. I'm having trouble finding anything in the literature as to why the smoothing coefficient can never be greater than 1. This question was started by me doing time series ARIMA ...
55 views

### Generate scenarios of multiple related parameters

Assume I have three industry datasets: interest rates, inflation and unemployment. Data contains information of last ten years and it's monthly. Now, I would like to create N possible scenarios of ...
58 views

### Predicting stock returns using principal components of macroeconomic variables

I'm trying to detect return predictability by regressing stock returns on the first couple of principal components of a set of macroeconomic variables. I'm doing this for different stock styles such ...
204 views

### Predicting portfolio returns

I suppose there are roughly two approaches to predict portfolio returns. Either predict the returns of all underlying stocks and aggregate all individual stock predictions, or predict the portfolio ...
41 views

### bond yield forecasting

About the problem of interest rate forecasting I find various paper that address the problem from the perspective of risk premia and affine term structure model. For example Cochrane and Piazzesi (...
205 views

### What is the best GARCH model for forecasting daily stock return and why?

If I want to forecast daily stock return let say Apple what would be the best GARCH model and why? (ARCH, GARCH-M, IGARCH, EGARCH, TARCH etc)
60 views

### How to prove that the expected squared error associated with the optimal combination weight is smaller than the minimum of 2 forecast variances?

I am looking at linear combination of two forecasts (Bates and Granger, 1969). I would like to understand how to prove that the expected squared error associated with the optimal combination weight is ...
66 views

### Why can the t-bill rate forecast stock returns?

The tbill rate is used as a predictor of the equity premium in a number of papers. Whilst there is not a general consensus about whether it is a significant predictor, it is still widely used. I ...
93 views

### GJR-GARCH model using garchFit function

I'm trying to use the garchFit function described here in order to define a GJR-GARCH model to estimate volatility and then forecast VaR. I tried using ...
99 views

### How to test the linearity assumption of a model?

Let's say I want to have a model that projects income over a stressed period. I have a marked-to-market component that shows the P&L of trading book positions during this stressed period. Along ...
554 views

### Rolling forecast using GARCH model

EDIT This is not a duplicate of my original question linked, since I have since overcome that problem and have posted an answer. Since solving the previous problem, I have run into the problem ...
485 views

### Is this the correct way to forecast stock price volatility using GARCH

I am attempting to make a forecast of a stock's volatility some time into the future (say 90 days). It seems that GARCH is a traditionally used model for this. I have implemented this below using ...
220 views

### Poor results forecasting stock price volatility using Python's GARCH model

As far as I understand, forecasting stock price volatility should be more achievable than forecasting absolute prices or returns. It seems as though GARCH models are the traditional and most widely ...
81 views

### Financial forecasting and Optimal order submission [closed]

For instance, If i have a model that can accurately forecast 3s ahead, would the trading logic be rather trivial? I have fit a series of distributions to L2 data and believe I have a fairly good grasp ...
2k views

### Predicting stock returns with GARCH in Python

I have seen this post: Correctly applying GARCH in Python which shows how to correctly apply GARCH models in Python using the arch library. Now I am wondering how I ...
144 views

### Why does computing correlation between index levels vs. percentage changes yield completely different results?

I am examining the relationship between the S&P 500 and the Industrial Production Index. Computing the correlation between these these variables yield vastly different results if expressed in ...
98 views

### Comparison of normalization methods on market returns

I am looking to use a multi-factor model to make target-return predictions. Since the factor-returns come from different scales I need to normalize first. There are different ways to normalize ...
39 views

### Forecasting time series data using auxiliary information and associated questions

Suppose I want to forecast MSFT time series, using MSFT history as well as SPY history. Are there good time series forecasting methods that permit auxiliary data to be used? Perhaps you should just ...
295 views

### Filling a few missing data in time series?

I'm writing a paper about Uncertainty indices like VIX, etc. I already collected all data but it seems that some of the variables got a few or a little more missing data. I have daily and monthly data ...
104 views

### What is the optimal approach to “backcasting” alternative asset classes (i.e. PE, Hedge Funds, Real Estate)?

I am interested in coming up with better risk calculations for alternative asset classes. As these are illiquid, not a lot of historical data is available. My idea is to use performance of stocks ...
247 views

### Why is the expected value of bias statistic one?

I have been reading about factor models recently. One of the ways in which the developer of these models (Barra/ Axioma) measure the accuracy of their models is by calculating the bias statistic for ...
39 views

### How to interpret the accuracy result of the forecaste?

I'm trying to forecast the vacancy rate of multifamily rental property. I have the data from 1992 until today. I'm trying to fit a model with the serie without the last 2 observations. I only need ...
178 views

### How to interpret and define statistics of GBM output

I am trying to model the future prices of a number of commodities. For this, I am applying geometric Brownian motion, writing a Monte Carlo code in Python. Given that I want to estimate tommorows ...
72 views

### Probability of outlier events for laplace distribution

I've read that the laplace distribution is better for forecasting purposes than the normal distribution due to it better accounting for fat tails. However, when I run the numbers in matlab, laplace ...
164 views

### What is the purpose of short rate models?

Just venturing into quantitative finance and studying short rate models (Vasicek, CIR, Hull-White etc.). Wanted to ask a very simple intuitive question. How would a practitioner use these models? I ...
95 views

### Bond asset class long term assumptions [closed]

How are long term capital market expectations set in the industry? I'm looking to get some pointers about setting long term assumptions for fixed income asset classes like global high yield credit, ...
359 views

### Accuracy for GARCH models

How does one calculate the accuracy of forecasts given by GARCH models considering GARCH is run on returns. Assuming GARCH is a derivative of a regression based prediction model, would regular ...
2k views

### Why are stock index futures not used to forecast how much the stock market will rise, given that interest rates futures are used for this purpose?

In news articles, the reader often read interest rates forecasts calculated based on interest rate futures. An example is here; How did traders calculate that the expected number of rate hikes is 4 ...
52 views

### Minimum Lower Partial Moment (n=2) hedging ratio

I would like to better have understanding on the minimum-LPM hedging. I have understood that the co-LPM matrix cannot be modeled by GARCH type models that are used to estimate to the covariance matrix,...
119 views

### How to find a probability of VIX moving from one price to another

I asked a similar question on here with a bounty. I decided to modify the question to simplify what I am trying to do. Is there a package on MATLAB or some other tool where I can find the probability ...
109 views

### Does forecasting asset returns by default assumes non-stationarity of asset returns?

If we assume the assets returns are stationary then the best forecast can only be the mean of the distribution. But if we assume non-stationarity we are forecasting the mean parameter (assuming ...
71 views

### $R^{2}$ Measure for Functions (Yield Curves)

I am used to applying $R^{2}$ (relative explained variance) as a measure for point estimates. I am now confronted with forecasting the whole of the yield curve and would like to see what fraction of ...
1k views

### Why quants think that the risk-neutral measure should not be used for financial forecasting?

In posts regarding the $\mathbb{P}$ vs $\mathbb{Q}$ debate (see 1, 2, 3 or 4), most answers conclude that historical-based methods are better suited than risk-neutral models for financial predictions. ...
68 views

### Is there a mathematical way of showing the slowing down of economic markets?

I'm currently taking a introductory mathematical finance course in university and recently on the news (BBC, etc), it states that the economic markets are shown to be slowing down for the next few ...
114 views

### What is a good algorithm to predict volatility in metals commodity markets? [closed]

I'm trying to create a script to predict major swings in the price of Aluminium. I am trying to implement a dynamic time warping algorithm for the same. Was wondering if this really is the best ...
513 views

### How to know if a time series is trending or mean reverting?

I came across Michael Halls-Moore article on using the Hurst exponent test to determine if a price time-series is mean-reverting, trend-following or closer to a random walk, but doesn't this disregard ...
3k views

### Can I forecast stock returns using GARCH?

I know this is a rookie question, but I have seen some comments about using GARCH to forecast stock returns. Is it something people do? Wasn't GARCH just for volatility? Also, can you suggest any (...
132 views

### Wavelet transform (the à trous time-based decomposition) in R

I urgently need to know how to apply the 'à trous' time-based decomposition in R [also known as Stationary Wavelet Transform] on a time series as a preprocessing, to use the result in forecasting and ...
114 views

### Monte Carlo volatily

I was wondering if we could do a forecast on volatility using monte carlo on an underlying asset. For example EUR/USD : Simulating a lot of possible paths on 1 year then calculate the volatilty for ...
101 views

### What are the current gold standards for volatility prediction error?

I'm working on volatility forecasting models for equities and currencies. I am using daily data and am interested in producing forecasts for the next n days. To ...
219 views

### Most GUI user friendly Time series Econometrics software for modelling and Forecasting GARCH models [closed]

I think the question is simple enough. I have been using Eviews, but it is unable to do recursive one step ahead forecasting directly and requires me to use coding, which I'm not very good at. I need ...