Question
While managing funds in the markets, investors look for ways to minimize drawdowns. As such, this year’s Prota Challenge question is about detecting drawdowns in the early stages of decline.
Details
We have noticed that there appears to be a trend in markets such that when one day has a significant drop (say, greater than two standard deviations) other drops are likely to follow. For the challenge, assume that markets are considered as equity (stock) markets for the initial case, but any market may fall under this category. For investors to better protect against such further drops, they need a predictive model.
Specifically, we are looking to understand and quantify these drawdowns into a predictive model that can be applied after the first significant drop happens.
Your task is to analyze market data (no smaller than daily resolution) to identify, define, and quantify any such pattern(s) to build either a model, or a framework for a model, that can allow for further research into the issue.
Prize
A cash prize of $1,000 will be given to the winning team, which will be chosen by a panel of judges at the 10th Eubank Conference on Real World Markets at Rice University on April 25, 2022. Team entrants must present their work as a poster at the conference. For Prota Challenge rules and specifications, see https://eubank2022.rice.edu/prota-challenge.
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