Category Archives: ARMA

Measuring Toxic Flow for Trading & Risk Management

A common theme of microstructure modeling is that trade flow is often predictive of market direction.  One concept in particular that has gained traction is flow toxicity, i.e. flow where resting orders tend to be filled more quickly than expected, while … Continue reading

Posted in Algorithmic Trading, ARMA, Direction Prediction, Econometrics, Econophysics, Forecasting, High Frequency Finance, Market Microstructure, Order Flow, Risk Management, Time Series Modeling, Toxic Flow | Tagged , , , | Comments Off

Forecasting Financial Markets – Part 1: Time Series Analysis

The presentation in this post covers a number of important topics in forecasting, including: Stationary processes and random walks Unit roots and autocorrelation ARMA models Seasonality Model testing Forecasting Dickey-Fuller and Phillips-Perron tests for unit roots Also included are a number … Continue reading

Posted in ARMA, Econometrics, Forecasting, Purchasing Power Parity, Time Series Modeling, Unit Roots, White Noise | Tagged , , , , , | 1 Comment

A Practical Application of Regime Switching Models to Pairs Trading

In the previous post I outlined some of the available techniques used for modeling market states.  The following is an illustration of how these techniques can be applied in practice.    You can download this post in pdf format here. The chart … Continue reading

Posted in ARMA, Econometrics, ETFs, Markov Model, Mean Reversion, Pairs Trading, Regime Switching, Statistical Arbitrage | Tagged , , , , , | Comments Off

Regime-Switching & Market State Modeling

The Excel workbook referred to in this post can be downloaded here. Market state models are amongst the most useful analytical techniques that can be helpful in developing alpha-signal generators.  That term covers a great deal of ground, with ideas … Continue reading

Posted in ARMA, Econometrics, Fat Tails, Forecasting, Markov State Models, Regime Shifts | Tagged , , , | 10 Comments