PLENARY SPEAKER

Modeling and Forecasting of Stock Markets under a System Adaptation Framework

Prof. Ben M. Chen
National University of Singapore, Singapore

Abstract

This talk addresses the adoption of the concept of dynamic feedback systems to model the behavior of financial markets, specifically the stock market, from a dynamic system point of view. Based on a feedback adaptation scheme, the movement of a stock market index is modeled within a framework that is composed of an internal dynamic model and an adaptive filter. The output-error model is adopted as the internal model whereas the adaptive filter is a time-varying state space model with instrumental variables. Its input-output behavior and internal as well as external forces are then identified. Supported by time-varying causality tests, five influential factors from economic and sentiment aspects are introduced as the input of this framework. Testing results show that the developed framework has a much better performance, especially in complicated economic situations, compared with the existing methods. An application of this framework is presented which focuses on identifying the turning periods of the market trend when the external force exhibits clear patterns in its frequency responses. Special attention is paid to the recent financial crisis by examining the movement of the Dow Jones Industrial Average under the proposed framework, as an example to illustrate the advantage of the present approach over the traditional ones.

Biography of the Plenary Speaker

Ben M. Chen is a Professor of Electrical and Computer Engineering at the National University of Singapore, where he has been since 1993. He received his B.S. in Mathematics and Computer science from Xiamen University, China, in 1983, M.S. in Electrical Engineering from Gonzaga University, USA, in 1988, and PhD in Electrical and Computer Engineering from Washington State University, USA, in 1991. He was a software engineer from 1983 to 1986 in South-China Computer Corporation, Guangzhou, China, and was an Assistant Professor from 1992 to 1993 at State University of New York at Stony Brook, USA. His current research interests are in systems theory, robust control, unmanned aerial systems, and financial market modeling.
Prof. Chen is a Fellow of IEEE. He is the author/co-author of 8 books including Loop Transfer Recovery: Analysis and Design (Springer, London, 1993), H2 Optimal Control (Prentice Hall, London, 1995), H Control and Its Applications (Springer, New York, 1st Edition, 1998; Revised Edition, 2000; Chinese Edition published by Science Press, Beijing, 2010), Hard Disk Drive Servo Systems (Springer, New York, 1st Edition, 2002; 2nd Edition, 2006), Linear Systems Theory: A Structural Decomposition Approach (Birkhäuser, Boston, 2004; Chinese Edition published by Tsinghua University Press, Beijing, 2008), and Unmanned Rotorcraft Systems (Springer, New York, 2011).
Prof. Chen has served on the editorial boards of a number of journals including IEEE Transactions on Automatic Control; Systems & Control Letter;, Automatica; Control and Intelligent Systems; and Journal of Control Theory and Applications. He was the recipient of Best Poster Paper Award at 2nd Asian Control Conference, Seoul, Korea (1997); University Researcher Award, National University of Singapore (2000); IES Prestigious Engineering Achievement Award, Institution of Engineers, Singapore (2001); Temasek Young Investigator Award, Defence Science & Technology Agency, Singapore (2003); Best Industrial Control Application Prize, 5th Asian Control Conference, Melbourne, Australia (2004); Best Application Paper Award, 7th Asian Control Conference, Hong Kong (2009), and Best Application Paper Award, 8th World Congress on Intelligent Control and Automation, Jinan, China (2010).