A Tree-Based Approach to Modelling Stock Exchange Index Returns in EU Countries

Abstract

In this paper, we examine the stock exchange index returns for the panel of 27 EU countries in the last ten years. Our method of choice is a special kind of tree-models, namely modelbased recursive partitioning (MOB). The MOB algorithm uses the generalized M-fluctuation test to examine the parameter stability for a given node. In this investigation, we attempt to explain the returns of the EU stock exchange indices with the help of gross domestic product, interest rates, and other financial and macroeconomic variables. The model-based recursive partitioning algorithm yields four terminal nodes pointing to GDP growth and rate of inflation as the splitting variables. During different inflation and GDP growth regimes, the observed explanatory variables impact the stock exchange index returns with varying intensity. The results are discussed and interpreted in light of the current economic situation

Keywords

• Model-based recursive partitioning, regression trees, stock returns, financial markets

AB Ülkelerinde Borsa Getirilerinin Modellenmesinde Ağaca Dayalı Yaklaşım

Abstract

Bu çalışmada son yıl içinde 27 AB ülkesi için hisse senedi endeksi getirileri incelenmektedir. Yöntem, ağaç modellerinin özel bir şeklidir, yani yinelemeli bölünmeye dayanan modeldir (MOB). MOB algoritması, verilen düğüm için parametre istikrarını incelemek için genellenmiş M-dalgalanma testini kullanır. Bu araştırmada AB hisse senetlerinin endekslerinin getirileri; gayri safi yurt içi hasıla, faiz oranları ve diğer finansal ve makro ekonomik değişkenler yardımıyla incelenmeye çalışılmaktadır. Yinelemeli bölünmeye dayanan model algoritması, üleştiren değişkenler olarak gayri safi yurt içi hasıla büyümesine ve enflasyon oranına işaret eden dört uç düğümü verir. Farklı enflasyon ve gayrisafi yurt içi hasıla düzenleri sırasında, gözlenen açıklayıcı değişkenler, hisse senedi endeksi getirilerini değişen yoğunluk ile etkiler. Sonuçlar, mevcut ekonomik durum ışığında yorumlanıp tartışılmaktadır

Keywords

• Yinelemeli bölünmeye dayanan model, regresyon ağaçları, hisse senedi getirileri, finansal piyasalar

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