Long- and Medium-Term Financial Strategies on Equities Using Dynamic Bayesian Networks

Devising a financial trading strategy that allows for long-term gains is a very common problem in finance. This paper aims to formulate a mathematically rigorous framework for the problem and compare and contrast the results obtained. The main approach considered is based on Dynamic Bayesian Network...

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Bibliographic Details
Published in:AppliedMath 2024-09, Vol.4 (3), p.843-855
Main Authors: Lewis, Karl, Caruana, Mark Anthony, Suda, David Paul
Format: Article
Language:English
Subjects:
dynamic Bayesian networks
equities
finance
trading strategies
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Summary:Devising a financial trading strategy that allows for long-term gains is a very common problem in finance. This paper aims to formulate a mathematically rigorous framework for the problem and compare and contrast the results obtained. The main approach considered is based on Dynamic Bayesian Networks (DBNs). Within the DBN setting, a long-term as well as a short-term trading strategy are considered and applied on twelve equities obtained from developed and developing markets. It is concluded that both the long-term and the medium-term strategies proposed in this paper outperform the benchmark buy-and-hold (B&H) trading strategy. Despite the clear advantages of the former trading strategies, the limitations of this model are discussed along with possible improvements.
ISSN:2673-9909
2673-9909
DOI:10.3390/appliedmath4030045