Equity Risk Premiums and Risk Free Rates in Modelling and Prediction of Financial Markets

Conference item


Ghavami, M and Shams Dilmaghani, R (2017). Equity Risk Premiums and Risk Free Rates in Modelling and Prediction of Financial Markets. International Conference on Mathematical Finance, Statistics and Economics. Vienna, Austria 21 - 22 Jun 2017 London South Bank University.
AuthorsGhavami, M and Shams Dilmaghani, R
Abstract

This paper proposes a novel adaptive framework for modelling financial markets using equity risk premiums, risk free rates and volatilities. The recorded economic factors are initially used to train four adaptive filters for a certain limited period of time in the past. Once the systems are trained, the adjusted coefficients are used for modelling and prediction of an important financial market index. Two different approaches based on least mean squares (LMS) and recursive least squares (RLS) algorithms are investigated. Performance analysis of each method in terms of the mean squared error (MSE) is presented and the results are discussed. Computer simulations carried out using recorded data show MSEs of 4% and 3.4% for the next month prediction using LMS and RLS adaptive algorithms, respectively. In terms of twelve months prediction RLS method shows a better tendency estimation compared to the LMS algorithm.

KeywordsPrediction of Financial Markets, Adaptive methods, MSE, LSE.
Year2017
PublisherLondon South Bank University
Accepted author manuscript
License
CC BY 4.0
Publication dates
Print21 Jun 2017
Publication process dates
Deposited08 May 2017
Accepted19 Apr 2017
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https://openresearch.lsbu.ac.uk/item/86yyz

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