Investment strategy due to the minimization of portfolio noise level by observations of coarse-grained entropy
arXiv:cond-mat/0412754 · doi:10.1016/j.physa.2004.06.133
Abstract
Using a recently developed method of noise level estimation that makes use of properties of the coarse grained-entropy we have analyzed the noise level for the Dow Jones index and a few stocks from the New York Stock Exchange. We have found that the noise level ranges from 40 to 80 percent of the signal variance. The condition of a minimal noise level has been applied to construct optimal portfolios from selected shares. We show that implementation of a corresponding threshold investment strategy leads to positive returns for historical data.
6 pages, 1 figure, 1 table, Proceedings of the conference APFA4. See http://www.chaosandnoise.org