Scandinavian Working Papers in Economics

Research Reports,
University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law

No 2007:8: Similarities and differences between statistical surveillance and certain decision rules in finance

David Bock (), Eva Andersson () and Marianne Frisén ()
Additional contact information
David Bock: Statistical Research Unit, Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Statistical Research Unit, Göteborg University, Box 640, SE 40530 GÖTEBORG
Eva Andersson: Statistical Research Unit, Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Statistical Research Unit, Göteborg University, Box 640, SE 40530 GÖTEBORG
Marianne Frisén: Statistical Research Unit, Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Statistical Research Unit, Göteborg University, Box 640, SE 40530 GÖTEBORG

Abstract: Financial trading rules have the aim of continuously evaluating available information in order to make timely decisions. This is also the aim of methods for statistical surveillance. Many results are available regarding the properties of surveillance methods. We give a review of financial trading rules and use the theory of statistical surveillance to find properties of some commonly used trading rules. In addition, a nonparametric and robust surveillance method is proposed as a trading rule. Evaluation measures used in statistical surveillance are compared with those used in finance. The Hang Seng Index is used for illustration.

Keywords: Trading rules; Hidden Markov model; Filter rule; Moving average; Statistical surveillance

JEL-codes: C10

30 pages, December 13, 2007

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