Similarities and differences between statistical surveillance and certain decision rules in finance

Abstract

Financial trading rules have the aim of continuously evaluating available information in order to make timely decisions. This is also the aim of methods for statistical surveillance. Many results are available regarding the properties of surveillance methods. We give a review of financial trading rules and use the theory of statistical surveillance to find properties of some commonly used trading rules. In addition, a nonparametric and robust surveillance method is proposed as a trading rule. Evaluation measures used in statistical surveillance are compared with those used in finance. The Hang Seng Index is used for illustration.