Modeling Volatility with TGARCH

Sergey Okun  This article was written by Sergey Okun – Senior Financial Analyst, I Know First, Ph.D. in Economics.

Summary:

  • Volatility has a number of statistical properties that must be taken into account in the modeling process.
  • The TGARCH model is one of the GARCH family models which allows for modeling volatility.
  • I Know First provides volatility predictions for short-term and long-term periods based on the machine learning approach.

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Researching Market Chaos

Sergey Okun  This article was written by Sergey Okun – Senior Financial Analyst, I Know First, Ph.D. in Economics.

Summary:

  • The Chaos theory is an alternative to the Theory of Probability which does not consider tossing a coin for making investment decisions.
  • One of the approaches to analyzing multidimensional nonlinear data series is to imitate the behavior of participants in the stock market.
  • I Know First provides stock market forecasts based on chaos theory approaches.

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Minimum Turbulence Portfolio

Sergey Okun  This article was written by Sergey Okun – Senior Financial Analyst, I Know First, Ph.D. in Economics.

Summary:

  • Economic shocks cause systemic structural changes in financial markets which are expressed in changes in connection between financial assets.
  • Mahalanobis Distance enables us to estimate stock market turbulence.
  • I Know First can help to find the most appropriate assets according to the current macroeconomic environment and systemic structural changes in financial markets.

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Where Chaos is Born

Sergey Okun  This article was written by Sergey Okun – Senior Financial Analyst, I Know First, Ph.D. in Economics.

Summary:

  • We can detect chaos even in a system in which everything seems determined.
  • Lorenz attractor provides evidence that there is order behavior in a chaotic system.
  • If the stock market is chaotic, it does not mean that it is not predictable, and I Know First provides stock market forecasts based on chaos theory approaches.

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Volatility Scaling with Autocorrelation

Sergey Okun  This article was written by Sergey Okun – Senior Financial Analyst, I Know First, Ph.D. in Economics.

Summary:

  • Autocorrelation enables us to estimate the volatility of an investment portfolio in a more precise way.
  • The S&P 500 returns characterize by negative autocorrelation which means that the S&P 500 has a less grade of risk than the estimation based on the assumption of stock returns independency.
  • The I Know First AI algorithm provides us with the tool to select the most promising stocks.

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Hedge and Safe Haven Financial Assets

Sergey Okun  This article was written by Sergey Okun – Senior Financial Analyst, I Know First, Ph.D. in Economics.

Summary:

  • Gold, short-term treasury bills, long-term treasury bonds, the spread between the long-term treasury and corporate bonds, 5-month volatility, and 1-month volatility are uncorrelated or negatively correlated with the S&P500 making them good candidates for a role of a hedge asset.
  • 5-month and 1-month volatility as exchange trade products, and also the short-term government bills and long-term government bonds able to play a role of a safe haven asset.
  • Correlation analysis of the S&P500 and TNX shows that the correlation structure is not consistent from data frame to data frame.

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Market Efficiency: Testing Random Walk by the Runs Test and the Variance Ratio Test

Sergey Okun  This article was written by Sergey Okun – Senior Financial Analyst, I Know First, Ph.D. in Economics.

Summary:

  • The stock market is not efficient which leaves a place to beat the market in a systematic way.
  • The market efficiency can be different from time to time, and the hypothesis of Random Walk cannot be rejected for some periods.
  • The I Know First AI algorithm provides us with the tool to select the most promising stocks in the chaotic market.

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VaR Estimation: Condition Shortfall

Sergey Okun  This article was written by Sergey Okun – Senior Financial Analyst, I Know First, Ph.D. in Economics.

Summary:

  • VaR does not provide insight into what losses might occur if the situation is worse than the threshold that we assume.
  • The Expected Shortfall method enables us to estimate the amount of tail risk an investment portfolio has.
  • The I Know First AI algorithm provides us with the tool to select the most promising stocks.

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