HMM Basics: Understanding Regime Detection From Log Returns to Market Regimes Using Hidden Markov Models In the previous notebook, we proved that log returns are the correct transformation for financial time series. Now we’ll use those log returns to detect market regimes using Hidden Markov Models (HMMs) . What …

Why Log Returns? A Mathematical Foundation Understanding the Correct Transformation for Financial Time Series Before we can detect market regimes , we must answer a fundamental question: How should we transform price data for statistical analysis? This notebook provides the mathematical proof for why log returns …