Hostname: page-component-7dd5485656-s6l46 Total loading time: 0 Render date: 2025-10-30T02:54:39.962Z Has data issue: false hasContentIssue false
  • English
  • Français

Bayesian Models for Forecasting Future Security Prices

Published online by Cambridge University Press:  19 October 2009

Robert L. Winkler
Get access Rights & Permissions [Opens in a new window]

Extract

The field of investment analysis provides an example of a situation in which individuals or corporations make inferences and decisions in the face of uncertainty about future events. The uncertainty concerns future security prices and related variables, and it is necessary to take account of this uncertainty when modeling inferential or decision-making problems relating to investment analysis. Since probability can be thought of as the mathematical language of uncertainty, formal models for decision making under uncertainty require probabilistic inputs. In financial decision making, this is illustrated by the models that have been developed for the portfolio selection problem; such models generally require the assessment of probability distributions (or at least some summary measures of probability distributions) for future prices or returns of the securities that are being considered for inclusion in the portfolio (e.g., see Markowitz [11] and Sharpe [19]).

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 8 , Issue 3 , June 1973 , pp. 387 - 405
Copyright
Copyright © School of Business Administration, University of Washington 1973

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

[1]Bartos, J. A. “The Assessment of Probability Distributions for Future Security Prices.” Ph.D. dissertation, Indiana University, 1969.Google Scholar
[2]Ericson, W. A. “Optimum Stratified Sampling Using Prior Information.” Journal of the American Statistical Association, vol. 60 (1965), pp. 750–771.Google Scholar
[3]Fama, E. F. “The Behavior of Stock-Market Prices.” Journal of Business, vol. 38 (1965), pp. 34–105.CrossRefGoogle Scholar
[4]Fama, E. F. “Portfolio Analysis in a Stable Paretian Market.” Management Science, vol. 11 (1965), pp. 404–419.Google Scholar
[5]Fama, E. F., and Roll, R.. “Some Properties of Symmetric Stable Distributions.” Journal of the American Statistical Association, vol. 63 (1968), pp. 817–836.Google Scholar
[6]Fama, E. F., and Roll, R.. “Parameter Estimates for Symmetric Stable Distributions.” Journal of the American Statistical Association, vol. 66 (1971), pp. 331–338.CrossRefGoogle Scholar
[7]Hsu, D.-A.; Miller, R. B.; and Wichern, D. W.. “On the Paretian Stable Behavior of Stock-Market Prices.” Unpublished manuscript, Department of Statistics, University of Wisconsin, 1972.Google Scholar
[8]Kalymon, B. A. “Estimation Risk in the Portfolio Selection Model.” Journal of Financial and Quantitative Analysis, vol. 6 (1971), pp. 559–582.CrossRefGoogle Scholar
[9]LaValle, I. H.An Introduction to Probability, Decision, and Inference. New York: Holt, Rinehart and Winston, 1970.Google Scholar
[10]Mao, J. C. T., and Särndal, C. E.. “A Decision Theory Approach to Portfolio Selection.” Management Science B, vol. 12 (1966), pp. 323–333.CrossRefGoogle Scholar
[11]Markowitz, H.Portfolio Selection: Efficient Diversification of Investments. New York: Wiley, 1959.Google Scholar
[12]Pankoff, L. D., and Roberts, H. V.. “Bayesian Synthesis of Clinical and Statistical Prediction.” Psychological Bulletin, vol. 70 (1968), pp. 762–773.Google Scholar
[13]Praetz, P. D. “The Distribution of Share Price Changes.” Journal of Business, vol. 45 (1972), pp. 49–55.Google Scholar
[14]Press, S. J.Applied Multivariate Analysis. New York: Holt, Rinehart and Winston, 1972.Google Scholar
[15]Raiffa, H., and Schlaifer, R.. Applied Statistical Decision Theory. Boston: Division of Research, Graduate School of Business Administration, Harvard University, 1961.Google Scholar
[16]Roberts, H. V. “Probabilistic Prediction.” Journal of the American Statistical Association, vol. 60 (1965), pp. 50–62.Google Scholar
[17]Robinson, W. O. “Multivariate Probability Assessment.” Unpublished master's thesis, Massachusetts Institute of Technology, 1970.Google Scholar
[18]Savage, L. J. “The Elicitation of Personal Probabilities and Expectations.” Journal of the American Statistical Association, vol. 66 (1971), pp. 783–801.Google Scholar
[19]Sharpe, W. F.Portfolio Theory and Capital Markets. New York: McGraw-Hill, 1970.Google Scholar
[20]Staël von Holstein, C.-A. S.Assessment and Evaluation of Subjective Probability Distributions. Stockholm: Economic Research Institute, Stockholm School of Economics, 1970.Google Scholar
[21]Winkler, R. L. “The Assessment of Probability Distributions in Bayesian Analysis.” Journal of the American Statistical Association, vol. 62 (1967), pp. 776–800.Google Scholar
[22]Winkler, R. L. “The Assessment of Probability Distributions for Future Security Prices.” In Methodology in Finance-Investments, edited by Bicksler, J. L.. Lexington, Mass.: Lexington Books, D. C. Heath, 1972, pp. 129–148.Google Scholar