Deakin University research improves accuracy of financial market forecasting

The international financial sector is taking stock of Deakin University research that is improving the predictability of the notoriously volatile financial markets.

The Deakin Centre for Economics and Financial Econometrics Research team led by Alfred Deakin Professor Paresh Narayan has used large data crunching and sophisticated modelling techniques to achieve a higher degree of accuracy in financial market forecasting.

While financial market prediction will never be foolproof, Professor Narayan said the many models he and his group have developed provide greater forecasting accuracy for exchange rates, interest rates and stock prices – key considerations for central and commercial banks.

“Forecasting has been a focus in policy making since the 1960s, with the key objective being to minimise forecasting error,” he explained.

“The models we have developed that account, as precisely as possible, for key statistical features of the data, provide a more realistic guide for policy makers to develop trading strategies.

"They have direct, industry-relevant outcomes - going beyond statistical analysis, influencing investment decisions, predicting types of profit and allowing investors to devise trading strategies on the basis of choosing optimal portfolios.”

Professor Narayan has just been awarded the International Gold Medal from the Indian Econometric Society.

The Mahalanobis Memorial Medal (International) is presented every four years to a person under the age of 45 who has made outstanding contributions to quantitative economics.

Professor Narayan is only the fourth person to receive this honour - joining an elite group of medal winners that includes two Nobel Prize-winners (Professors Peter Diamond and Amartya Sen).

With a keen interest in exploring the implications of econometric models for policy makers, investors and researchers, Professor Narayan has built strong industry connections across the globe. Amongst many other activities, he is leading a collaboration with the Central Banks of Malaysia and Turkey and other universities in the region to develop Islamic finance research which is drawing significant interests from both academic and professional bodies. He has also given a number of keynote addresses on Islamic finance including at the 2015 G20 meetings.

“Econometric modelling is setting new benchmarks for Islamic finance research which is reflected in the popularity of the work we do here at Deakin,” Professor Narayan said.

“My team has developed a new database on global Islamic financial stocks and we are using econometric models to evaluate not only the price setting behaviour of Islamic stocks but also forecasting Islamic stock prices and devising trading strategies based on econometric models.”

Professor Narayan’s research spans both the fields of finance and the emerging discipline of applied financial econometrics, and, together with his group, has led to ground-breaking papers in several quality journals, contributing directly to the Deakin Department of Finance’s rise to “world standard” in the 2015 Excellence in Research Australia (ERA) ratings.