International Conference on Eurasian Economies
29-31 August 2016 – Kaposvár, HUNGARY
Paper detail
Paper ID : 1736
Status : Paper published
Language : Turkish
Topic : Finance and Financial Crises
Presenter: Salih Çam
Session : 2D Finans II
Estimation of Direction of Exchange Rate, Gold Price and Stock Market Returns with High Order Markov Chain Models
Döviz Kuru, Altın Fiyatları ve Borsa Getirileri Yönünün Yüksek Dereceden Markov Zincirleri Modelleri ile Tahmini
- Prof. Dr. Süleyman Bilgin Kılıç (Çukurova University, Türkiye)
- Salih Çam (Çukurova University, Türkiye)
Abstract
This study uses a hybrid high order Markov Chains Model to predict direction of exchange rate, gold price and stock market returns with the Artificial Neural Network Algorithm as an estimator of transition probability matrix. Many forecasting techniques are used to examine the direction of returns forecasting in the literature such as Markov Chains Model and Artificial Neural Network Algorithm. In this study, it is aimed to combine these two techniques and to utilize the predict values of the Artificial Neural Network Algorithm for calculate transition probabilities matrix. Calculations show that the hybrid model gives high correct classification probabilities besides of well approximated transition probabilities. Returns series of USD/TRY exchange rate, closing price of Borsa Istanbul Stock Exchange and gold prices cover the period of 01/01/2003 and 31/01/2016. All series are obtained from database of Central Bank of Turkey. As a result, although the transition probabilities almost equal to 0.5 and so estimation of these series are not easy, the transition probabilities and correct classification probabilities gained from the hybrid model provide substantial information related to direction of returns forecasting. Besides, estimated model provide valuable information to individual investors and companies, and could help them to take position against to risks.
JEL codes: C13, C45, G17
Kılıç, Süleyman Bilgin, Çam, Salih (2016). "Estimation of Direction of Exchange Rate, Gold Price and Stock Market Returns with High Order Markov Chain Models" in Proceedings of International Conference of Eurasian Economies 2016, pp.598-604, Kaposvár, HUNGARY.
DOI: https://doi.org/10.36880/C07.01736
