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Hot answers tagged stationarity

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• 527

Why is OU process stationary?

I think you misunderstood the definition. Be stationary does not mean not depend of the time as you can check here. (Sorry for putting an wikipedia link here as I suppose you may have read it) ...
• 608

How is stock data objectively different to this random walk?

For both time-series, just plot the log returns. You will see that one is not a Random-Walk .. the S&P500 since you will get values that far beyond the normal distribution. Just watch this video ...
• 493

Problem - stationarity and relevance

Any data transformation to assure stationarity eliminates part of the signal in many cases the signal is not completely eliminated so you can still perform the required analyses but in some others as ...
• 436

Stationary Process with autocorrelation in Variance; square root rule

You are correct in that the series is not stationary. The ADF test isn't designed to test for stationarity outside the center of location. You are not going to be able to use the square root rule to ...
• 4,119
Accepted

Would you consider yield a stationary or non-stationary process?

Following Meucci (Risk and Asset Allocation book, page 112-113) you should use "change of yield to maturity" (simple change, not percentage) since they represent Fixed Income´s invariant. Change of ...
• 296

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

This looks confused? I don't understand what you're saying in the second paragraph... Comment 1: "Best" forecast depends on what you mean by "best." Let $Y$ be a random variable and $\mathcal{F}$ be ...
• 6,484

Differencing vs Detrending financial time series

Let me try to write formulae to explain the differences: When $X_t=a+b\,t + c\,\xi_t$, where $\xi_t$ is an iid centered and reduced noise (ie $\mathbb{E}\xi=0$ and $\mathbb{E}\xi^2=1$. With \$X_(t+1)-...
• 10.9k
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Estimate covariance matrix using prices

For the same reason you can't meaningfully measure covariance/correlation using price of individual assets...correlation (covariance by extension) represents the comovement in deviations from ...
• 1,598
Accepted

Do stationary prices need to be differenced for VaR?

I worry that power prices are very unlikely to be stationary. It is possible the mean does not vary wildly over time, and the price process may not be integrated, i.e. prices may not require ...
• 2,810
Accepted

Are cumulative returns stationary?

In a nutshell... It's always prudent and conservative to assume that prices are non-stationary. But it's not actually as obvious this is true as it intuitively sounds. Intuitively, any random walk ...
• 4,921
1 vote
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How can I approximate Dollar Bars from Minute Data instead of Tick Data?

The following python package, mlfinlab, provides an implementation for both standard and information-driven bars. The good news is that you won't have to implement the techniques from scratch and they ...
1 vote

log return of sp500. Stationary vs strictly stationary

They probably can be modelled using a weakly stationary process. To quote Section 1.2.1 from these lecture notes: [Asset] returns [...] typically fluctuate around a constant level, suggesting a ...
• 200
1 vote

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. This part is not accurate. Stationarity, even in its strongest sense, only implies that ...
• 113
1 vote
Accepted

principal component analysis on non stationary data

You may know that they are two definitions of stationary (see for instance Series of Irregular Observations: Forecasting and Model Building; this book probably contains all you need to model ...
• 10.9k

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