N-Tuple S&P 500 Index Patterns Across Decades, 1950s to 2011

20 Pages Posted: 2 Nov 2013

See all articles by A. (Tassos) G. Malliaris

A. (Tassos) G. Malliaris

Loyola University of Chicago - Department of Economics

Mary Malliaris

Loyola University Chicago

Date Written: October 31, 2013

Abstract

Numerous studies have analyzed the movements of the S&P 500 Index using several methodologies such as technical analysis, econometric modeling, time series techniques and theories from behavioral finance. In this paper we take a novel approach. We use daily closing prices for the S&P 500 Index for a very long period from 1/3/1950 to 7/19/2011 for a total of 15,488 daily observations. We then investigate the up and down movements and their combinations for 1 to 7 days giving us multiple possible patterns for over six decades. Some patterns of each type are more dominant across decades. We split the data into training and validation sets and then select the dominant patterns to build conditional forecasts in several ways, including using a decision tree methodology. The best model is correct 51% of the time on the validation set when forecasting a down day, and 61% when forecasting an up day. We show that certain conditional forecasts outperform the unconditional random walk model.

Keywords: S&P 500 Index; Patterns across decades; Random walk; Decision tree methodology

JEL Classification: C44, C53, G14, G17

Suggested Citation

Malliaris, A. (Tassos) G. and Malliaris, Mary, N-Tuple S&P 500 Index Patterns Across Decades, 1950s to 2011 (October 31, 2013). Available at SSRN: https://ssrn.com/abstract=2348357 or http://dx.doi.org/10.2139/ssrn.2348357

A. (Tassos) G. Malliaris (Contact Author)

Loyola University of Chicago - Department of Economics ( email )

16 E. Pearson Ave
Quinlan School of Business
Chicago, IL 60611
United States
312-915-6063 (Phone)

Mary Malliaris

Loyola University Chicago ( email )

16 East Pearson Street
Chicago, IL 60611
United States
312-915-7064 (Phone)

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