Wavelet transform on regression trend curve and its application in financial data

Abstract

In this paper, wavelet transform on a regression curve is investigated by using length-preserving projection and its application in financial data is also discussed. First, properties of wavelet filters on the regression trend curves are studied and two-scale equation of wavelet function is deduced on the regression trend curves. Second, the decomposition and reconstruction algorithm of discrete wavelet transform on regression trend curves is derived. Finally, two examples in financial data are given for discussion, based on decomposition and reconstruction algorithms on regression trend curves. Some new research interpretations are presented in dealing with financial data such as “volatility on regression growth trend”, “error on regression growth trend”, and so on.