%0 Journal Article
%T Bifurcation patterns of market regime transition
%A Sergey Kamenshchikov
%J Quantitative Finance
%D 2015
%I arXiv
%X The goal of this research was applying a nonlinear approach to the detection of market regime transitions: mean reversion to momentum regimes and vice versa.It has been shown that the transition process has nonlinear scenarios: slow and fast bifurcations.Slow bifurcation assumes that control parameter is changing slowly in relation to the system characteristic time. Gradual absorption of information provides stability loss delay effect.Fast bifurcation has a discrete non equilibrium nature.Each transition from one attracting cycle to another one is preceded by passing through fixed point state: an effect of precatastophic stabilization exists.Two analytical methods have been developed for recognition of slow and fast bifurcation: R analysis and D analysis correspondingly.Combined R/D tool has been incorporated for analysis of world financial crisis of 2008.It turned out that R analysis is more convenient for long term investment while D analysis suggests middle- and short-term approach.R/D analysis has been applied as a filter for currency positional trading system. Slow and fast bifurcation patterns have been applied for the filtering of breakdown signals.Incorporation of a filter allowed to reduce twice the number of trades and to increase system efficiency, Calmar ratio, by seven times. R/D filter allowed decreasing sensitivity to volatility: duration of equity stagnation has fallen down to two months in relation to one year for the original breakdown system. It has been shown that R and D patterns may improve the long term efficiency and stability of a momentum quantitative trading model.
%U http://arxiv.org/abs/1507.03141v1