Statistical analysis of strait time index and a simple model for trend and trend reversal

Abstract

We analyze the daily closing prices of the Strait Time Index (STI) as well as the individual stocks traded in Singapore's stock market from 1988 to 2001. We find that the Hurst exponent is approximately 0.6 for both the STI and individual stocks, while the normal correlation functions show the random walk exponent of 0.5. We also investigate the conditional average of the price change in an interval of length T given the price change in the previous interval. We find strong correlations for price changes larger than a threshold value proportional to √T; this indicates that there is no uniform crossover to Gaussian behavior. A simple model based on short-time trend and trend reversal is constructed. We show that the model exhibits statistical properties and market swings similar to those of the real market. © 2002 Elsevier Science B.V. All rights reserved.