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Article

Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets

1
Faculty of Accounting and Management, Saint Nicholas and Hidalgo Michoacán State University (UMSNH), 58030 Morelia, Mexico
2
Financial Economy and Accounting Department, Faculty of Business, Finance and Tourism, University of Extremadura, 10071 Cáceres, Spain
*
Author to whom correspondence should be addressed.
Mathematics 2020, 8(6), 942; https://doi.org/10.3390/math8060942
Received: 6 May 2020 / Revised: 27 May 2020 / Accepted: 3 June 2020 / Published: 8 June 2020
(This article belongs to the Special Issue Financial Mathematics)
In the present paper, we review the use of two-state, Generalized Auto Regressive Conditionally Heteroskedastic Markovian stochastic processes (MS-GARCH). These show the quantitative model of an active stock trading algorithm in the three main Latin-American stock markets (Brazil, Chile, and Mexico). By backtesting the performance of a U.S. dollar based investor, we found that the use of the Gaussian MS-GARCH leads, in the Brazilian market, to a better performance against a buy and hold strategy (BH). In addition, we found that the use of t-Student MS-ARCH models is preferable in the Chilean market. Lastly, in the Mexican case, we found that is better to use Gaussian time-fixed variance MS models. Their use leads to the best overall performance than the BH portfolio. Our results are of use for practitioners by the fact that MS-GARCH models could be part of quantitative and computer algorithms for active trading in these three stock markets. View Full-Text
Keywords: Markov-Switching; Markov-Switching GARCH; Markovian chain; algorithmic trading; active stock trading; active investment; Latin-American stock markets; computational finance Markov-Switching; Markov-Switching GARCH; Markovian chain; algorithmic trading; active stock trading; active investment; Latin-American stock markets; computational finance
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MDPI and ACS Style

De la Torre-Torres, O.V.; Galeana-Figueroa, E.; Álvarez-García, J. Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets. Mathematics 2020, 8, 942. https://doi.org/10.3390/math8060942

AMA Style

De la Torre-Torres OV, Galeana-Figueroa E, Álvarez-García J. Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets. Mathematics. 2020; 8(6):942. https://doi.org/10.3390/math8060942

Chicago/Turabian Style

De la Torre-Torres, Oscar V., Evaristo Galeana-Figueroa, and José Álvarez-García. 2020. "Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets" Mathematics 8, no. 6: 942. https://doi.org/10.3390/math8060942

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