Volume : 4, Issue : 1, January - 2015

Fourier Transformation on Model Fitting for Sri Lankan Share Market Returns

W. G. S. Konarasinghe, N. R. Abeynayake

Abstract :

<p>Sri Lankan share market returns have wave like patterns. A wave can be viewed either in time domain or in the frequency< /> domain. The frequency domain analysis is known as Spectral Analysis or Fourier analysis. This study was focused on< /> applying Fourier transformation on model fitting for stock returns of Sri Lankan share market. Also it was intended to compare the forecasting< /> ability of above models and Auto Regressive Integrated Moving Average (ARIMA). First Fourier transformation was used to transform monthly< /> returns to series of trigonometric series and multiple regression analysis was used for estimating amplitudes. Monthly returns also were analyzed< /> by ARIMA. Root Mean Square Errors of models fitted with spectral analysis were less than those of ARIMA models. It was concluded that Fourier< /> transformation along with multiple regressions are suitable for forecasting individual company returns of Sri Lankan share market.</p>