On the Zipf Strategy for Short-Term Investments in WIG20 Futures

• Authors: B. Bieda , P. Chodorowski , D. Grech
• Languages of publication: EN

Abstracts

EN

We apply the Zipf power law to financial time series of WIG20 index daily changes (open-close values). Thanks to the mapping of time series signal into the sequence of 2k+1 'spin-like' states, where k=0, 1/2, 1, 3/2, ..., we are able to describe any time series increments, with almost arbitrary accuracy, as the one of such 'spin-like' states. This procedure leads in the simplest non-trivial case (k = 1/2) to the binary data projection. More sophisticated projections are also possible and mentioned in the article. The introduced formalism allows then to use Zipf power law to describe the intrinsic structure of time series. The fast algorithm for this implementation was constructed by us within Matlab^{TM} software. The method, called Zipf strategy, is then applied in the simplest case k = 1/2 to WIG 20 open and close daily data to make short-term predictions for forthcoming index changes. The results of forecast effectiveness are presented with respect to different time window sizes and partition divisions (word lengths in Zipf language). Finally, the various investment strategies improving return of investment (ROI) for WIG20 futures are proposed. We show that the Zipf strategy is the appropriate and very effective tool to make short-term predictions and therefore, to evaluate short-term investments on the basis of historical stock index data. Our findings support also the existence of long memory in financial data, exceeding the known in the literature 3 days span limit.

Keywords

EN

05.45.Tp; 89.75.Da; 05.40.-a; 89.65.Gh

Discipline

• 05.45.Tp: Time series analysis
• 89.65.Gh: Economics; econophysics, financial markets, business and management(for economic issues regarding production and use of renewable energy, see 88.05.Lg)
• 89.75.Da: Systems obeying scaling laws
• 05.40.-a: Fluctuation phenomena, random processes, noise, and Brownian motion(for fluctuations in superconductivity, see 74.40.-n; for statistical theory and fluctuations in nuclear reactions, see 24.60.-k; for fluctuations in plasma, see 52.25.Gj; for nonlinear dynamics and chaos, see 05.45.-a)

• Publisher: Institute of Physics, Polish Academy of Sciences
• Journal: Acta Physica Polonica A
• Year: 2012
• Volume: 121
• Issue: 2B
• Pages: B-7-B-10

Dates

published

2012-02

Contributors

author

B. Bieda

• Institute of Telecommunication, Teleinformatics and Acoustics, Wrocław University of Technology, Wybrzeze St. Wyspianskiego 27, PL-50-370 Wrocław, Poland

author

P. Chodorowski

• Bank Zachodni WBK SA (BZWBK), Finance Division, Rynek 9/11, PL-50-950 Wrocław, Poland

author

D. Grech

• Institute of Theoretical Physics, University of Wrocław, pl. M. Borna 9, PL-50-204 Wrocław, Poland

References

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Identifiers

DOI

10.12693/APhysPolA.121.B-7