Statistical Control Charts: Performances of Short Term Stock Trading in Croatia

Abstract

Background:The stock exchange, as a regulated financial market, in modern economies reflects their economic development level. The stock market indicates the mood of investors in the development of a country and is an important ingredient for growth. Objectives: This paper aims to introduce an additional statistical tool used to support the decision-making process in stock trading, and it investigate the usage of statistical process control (SPC) methods into the stock trading process. Methods/Approach: The individual (I), exponentially weighted moving average (EWMA) and cumulative sum (CUSUM) control charts were used for gaining trade signals. The open and the average prices of CROBEX10 index stocks on the Zagreb Stock Exchange were used in the analysis. The statistical control charts capabilities for stock trading in the short-run were analysed. Results: The statistical control chart analysis pointed out too many signals to buy or sell stocks. Most of them are considered as false alarms. So, the statistical control charts showed to be not so much useful in stock trading or in a portfolio analysis. Conclusions: The presence of non-normality and autocorellation has great impact on statistical control charts performances. It is assumed that if these two problems are solved, the use of statistical control charts in a portfolio analysis could be greatly improved.

Control chart based on residues: Is a good methodology to detect outliers?

“…Number of publications on the topic statistical process control in the Web of Science Dumičić and Žmuk (2015) used exponentially weighted moving average (EWMA) and cumulative sum (CUSUM) charts to support decision making in the stock market trading process. The EWMA and CUSUM control charts were used for the purpose of pointing out stock purchase and sale signals.…”

Control charts in financial applications: An overview

“…Dumičić and Žmuk 52 mentioned in their work difficulties for using statistical control charts for making decisions about trading on the stock market on short‐term period. They applied univariate control schemes in opening and average prices of stocks from the CROBEX10 market index from the Zagreb Stock Exchange.…”

“…The same problem of many out‐of‐control limits observations that appears in the case of using average stock prices makes the use of control charts in portfolio analysis, according to the authors, dubious. Possible explanations for this problem, according to Dumičić and Žmuk 52 , may be the fact that stock prices show nonnormal distribution and exhibit autocorrealtion. More appropriate control chart procedures could be a solution to this problem.…”

“…Possible serial correlation in the time series of returns is dealt with using differences in an EWMA recursion of returns and the new control limits can be computed using the moving range (MR) method. Dumičić and Žmuk 52 mentioned in their work difficulties for using statistical control charts for making decisions about trading on the stock market on short-term period. They applied univariate control schemes in opening and average prices of stocks from the CROBEX10 market index from the Zagreb Stock Exchange.…”

Evaluation of Research Standards at Ministry of Research, Technology and Higher Education with I-MR Map Control Analysis

“…Evaluation activities are done by studying directly about what is actually happening at the practical level. Evaluation of research activity is conducted by using criteria specified in Ministry Regulation of Research, Technology, and Higher Education (Permenristekdikti) 44/2015 on National Standard of Higher Education [3], which consists of 7 (seven) criteria that is result standard, content standard, process standard, assessment standard, researcher standard, facilities and infrastructure standard, management standards, and standard of funding and research financing.…”