A1103
Title: Early warning systems for financial markets of emerging economies
Authors: Artem Prokhorov - University of Sydney (Australia)
Artem Kraevskiy - Sberbank (Russia) [presenting]
Evgeny Sokolovskiy - Sberbank (Russia)
Abstract: A new online early warning system (EWS) for what is known in machine learning is developed and applied as concept drift, in economics as a regime shift and in statistics as a change point. The system goes beyond the linearity assumed in many conventional methods and is robust to heavy tails and tail dependence in the data, making it particularly suitable for emerging markets. The key component is an effective change-point detection mechanism for conditional entropy of the data rather than for a particular indicator of interest. Combined with recent advances in machine learning methods for high-dimensional random forests, the mechanism is capable of finding significant shifts in information transfer between interdependent time series when traditional methods fail. The aim is to explore when this happens using simulations and illustrations are provided by applying the method to Uzbekistan's commodity and equity markets as well as to Russia's equity market in 2021-2023.
