The goal of this study is to make connections between Bollinger Bands and time series models in order to gain a better understanding of the statistical underpinnings of Bollinger Bands. In the first part of the study, we review a popular econometric model called the rolling regression time series model and illustrate an equivalence between the latter and the Bollinger Band methodology. In the second part of the study, we illustrate the use of Bollinger Bands in pairs trading \mbox{%DIFAUXCMD INV2007 return duration relationship in Bollinger Bands pairs trading.Then , by viewing Bollinger Bands as an approximation to the random walk plus noise (RWPN) time series model, we are able to modify the Bollinger Band algorithm used in pairs trading and develop a pairs trading variant that we call "Fixed Forecast Maximum Duration  Bands" (FFMDPT). Finally , we conduct historical simulations using SAP-Nikkei data in order to compare the performance of the variant with Bollinger Bands in order to analyze its advantages and disadvantages .
The goal of this study is to explain and examine the statistical underpinnings of the Bollinger Band methodology. We start off by elucidating the rolling regression time series model and deriving its explicit relationship to Bollinger Bands. Next we illustrate the use of Bollinger Bands in pairs trading and prove the existence of a specific return duration relationship in Bollinger Band pairs trading.Then by viewing the Bollinger Band moving average as an approximation to the random walk plus noise (RWPN) time series model, we develop a pairs trading variant that we call "Fixed Forecast Maximum Duration ' Bands" (FFMDPT). Lastly , we conduct pairs trading simulations using SAP and Nikkei index data in order to compare the performance of the variant with Bollinger Bands .
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make connections between Bollinger Bands and time series models in order to gain a better understanding of
explain and examine
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Bollinger Bands. In the first part of the study, we review a popular econometric model called the
the Bollinger Band methodology. We start off by elucidating the
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illustrate an equivalence between the latter and the Bollinger Band methodology. In the second part of the study,
deriving its explicit relationship to Bollinger Bands. Next
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and prove the existence of a specific
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, by viewing Bollinger Bands
by viewing the Bollinger Band moving average
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are able to modify the Bollinger Band algorithm used in pairs trading and
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historical simulations using SAP-Nikkei
pairs trading simulations using SAP and Nikkei index
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in order to analyze its advantages and disadvantages