Detecting bearish and bullish markets in financial time series using hierarchical hidden Markov models

Financial markets exhibit alternating periods of rising and falling prices. Stock traders seeking to make profitable investment decisions have to account for those trends, where the goal is to accurately predict switches from bullish to bearish markets and vice versa. Popular tools for modelling financial time series are hidden Markov models, where a latent state process is used to explicitly model switches among different market regimes. In their basic form, however, hidden Markov models are not capable of capturing both short- and long-term trends, which can lead to a misinterpretation of short-term price fluctuations as changes in the long-term trend. In this article, we demonstrate how hierarchical hidden Markov models can be used to draw a comprehensive picture of market behaviour, which can contribute to the development of more sophisticated trading strategies. The feasibility of the suggested approach is illustrated in two real-data applications, where we model data from the Deutscher Aktienindex and the Deutsche Bank stock. The proposed methodology is implemented in the R package fHMM, which is available on CRAN.

Hidden Markov Model-Based Smart Annotation for Benchmark Cyclic Activity Recognition Database Using Wearables

Activity monitoring using wearables is becoming ubiquitous, although accurate cycle level analysis, such as step-counting and gait analysis, are limited by a lack of realistic and labeled datasets. The effort required to obtain and annotate such datasets is massive, therefore we propose a smart annotation pipeline which reduces the number of events needing manual adjustment to 14%. For scenarios dominated by walking, this annotation effort is as low as 8%. The pipeline consists of three smart annotation approaches, namely edge detection of the pressure data, local cyclicity estimation, and iteratively trained hierarchical hidden Markov models. Using this pipeline, we have collected and labeled a dataset with over 150,000 labeled cycles, each with 2 phases, from 80 subjects, which we have made publicly available. The dataset consists of 12 different task-driven activities, 10 of which are cyclic. These activities include not only straight and steady-state motions, but also transitions, different ranges of bouts, and changing directions. Each participant wore 5 synchronized inertial measurement units (IMUs) on the wrists, shoes, and in a pocket, as well as pressure insoles and video. We believe that this dataset and smart annotation pipeline are a good basis for creating a benchmark dataset for validation of other semi- and unsupervised algorithms.