Automation of the Individualized Investing Strategy for an Investment Advisor Established by a Semi-Markov Regime-Switching Model

The purpose is to establish an automated investing strategy which can imitate an advisor’s behaviour in financial market. In view of the above needs, we review previous studies of Markov regime-switching model whose duration is geometrically distributed, propose a semi-Markov regime-switching model...

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Bibliographic Details
Published in:Computational economics 2024-06, Vol.63 (6), p.2351-2370
Main Authors: Liu, Junrong, Chen, Zhiping, Duan, Qihong
Format: Article
Language:English
Subjects:
Advisors
Algorithms
Automation
Behavioral/Experimental Economics
Computer Appl. in Social and Behavioral Sciences
Datasets
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Financial market
Investment advisors
Investments
Markov analysis
Markov chains
Math Applications in Computer Science
Mathematics
Operations Research/Decision Theory
Optimization techniques
Parameter estimation
Performance evaluation
Securities markets
Stochastic models
Switching
Time series
Trends
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Summary:The purpose is to establish an automated investing strategy which can imitate an advisor’s behaviour in financial market. In view of the above needs, we review previous studies of Markov regime-switching model whose duration is geometrically distributed, propose a semi-Markov regime-switching model whose duration has a general distribution. By extending the state space of the semi-Markov chain, the model is transformed to a Markov regime-switching model. As the full information of the semi-Markov regime-switching model is available in the issue, we propose a divide-and-conquer and computationally tractable algorithm to estimate parameters. Experiments with empirical datasets show that the automated investing strategy based on estimated parameters behaves like the investment advisor. For an investment advisor, the automated investing strategy can help the advisor to avoid boring routines, and evaluate the advisor’s advice thoroughly.
ISSN:0927-7099
1572-9974
DOI:10.1007/s10614-023-10409-z