Can you describe the stock index with a Markov chain
Jesper Sundberg, Gustaf Klacksell · KTH Publication Database DiVA (KTH Royal Institute of Technology) · 2012
The project has as task, if possible, to predict the stock market by assuming that it behaves like a Markov chain. To accomplish this, Markov chains of order one, two and three are used. All the observed stocks are considered as up- or downgoing at closing. This leaves the Markov chain with two possible states. Both daily and weekly reports occur. A program is constructed to be able to generate hints on how the stock price is going to change in the future. The program which does these calculations also tests itself to see the proportion of correct hints, i.e. how efficient the program is. The efficiency is measured in two made-up constants, the GJ constant and the J constant. The program in use is Matlab. Keywords: Markov chain, higher order, two states, self-test, Matlab.