Financial Markets: Very Noisy Information
Malik MagdonIsmail, Alexander Nicholson and Yaser S. AbuMostafa
Abstract--- We report new results about the impact of
noise on information processing, with application to finan
cial markets. These results quantify the tradeoff between
the amount of data and the noise level in the data. They also
provide estimates for the performance of a learning system
in terms of the noise level. We use these results to derive a
method for detecting the change in market volatility from
period to period. We successfully apply these results to the
four major foreign exchange markets. The results hold for
linear as well as nonlinear learning models and algorithms,
and for different noise models.
Keywords--- Learning, Noise, Convergence, Bounds, Test
Error, Generalization Error, Model Limitation, Volatility.
NFORMATION processing of financial data entails the