The Mysterious First Post a.k.a. Welcome to My Blog

Predictions, prophesies, prognostications. Augury, forecast, divination. Using anything from crystal balls to scientific models, humans have been trying forever to predict the future. More often than not, they're unsuccessful, (although recent advancements in science and technology have garnered some promising results.) 

But that won't stop me from giving it a shot! Ladies and gentlemen, join me as I seek the secret of predicting the future. Follow me as I prepare to boldly go where no man few seventeen-year-old-Asian-American-teenagers have gone before: on a quest for an elusive model that will foretell changes in stock market index prices.

Have I piqued your interest? A little bit? Haha, good. Now, let's get down to the nitty gritty as I tell you a bit more about my project.

Research Question:

What is the relationship between financial market indices, and how can their current price trends be used to make a mathematical model that can predict future prices?

Evidence to Assist:

1. Both the basics of stock markets, indices, and the Matlab program can be researched easily on the Internet. For example, letslearnfinance.com offers a variety of articles that explain basic financial concepts, and the “Matlab Tutorial and Learning Resources” page on mathworks.com will allow me to familiarize myself with Matlab.
2. In high-frequency trading, many firms, such as Renaissance Technologies, use computerized complex algorithms to make trading decisions before humans can analyze the data themselves. However, such tools are not available and are too complex for the average person.
3. The Matlab program has been used previously in relation to financial and stock markets. For example, Sebastian Musielak of Worcester Polytechnic Institute used Matlab and various mathematical techniques to evaluate different techniques for predicting the short term changes in stock prices for his college thesis.

Argument:

I hope to: 1) gain a greater understanding of the relationships between different stock market indices through Internet research, and 2) use Matlab and proper orthogonal decomposition to create an autoregressive moving-average model that will predict future prices. This will hopefully show that accessible mathematical software can be used by a home investor to make more accurate predictions in financial markets.

Bias:

As a potential finance major in college, I’ve always been interested in investment theory. Since my linear algebra and vector calculus class has been dealing extensively with matrices, I feel like now is an opportune time to use the basics I’ve learned in that class along with new techniques I will research to learn more about financial markets as well as possibly produce something of practical use. Though I know that the real predictive models companies use to determine their investment strategies are infinitely more complex than anything I can produce at the moment, I want to familiarize myself with the possibilities of predictive modeling, mathematical programs and models, and financial markets.

Counterargument:

It is possible I will be unable to devise a model that can predict the future prices of stock market indices with reasonable accuracy in the time I have.

Response:

Should this occur, I will instead research why my model could not work. Or, rather than attempting to predict future prices of indices, I could research what drives these indices up and down. Perhaps this research would help me determine why I could not devise a suitable model.        

    

....Phew. Did you get through all of that? If you managed to read everything above in one go, I'm pretty impressed.

Anyhow, thanks for stopping by. Hope you'll visit again.

Until next time! :)

~Lu