This is a summary of links featured on Quantocracy on Sunday, 11/03/2024. To see our most recent links, visit the Quant Mashup. Read on readers!
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Day 11: Autocorrelation [OSM]On Day 10, we analyzed the performance of the 12-by-12 model by examining the predicted values and residuals. Our initial takeaway suggested the model did seem not overly biased or misspecified in the -10% to 10% region. But when it gets outside that range, watch out! We suspected that there was some autocorrelation in the residuals, which we want to discuss today. There are different statistical
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Using Trading Volume to Optimize Portfolio Construction and Implementation [Alpha Architect]While portfolio optimization typically focuses on risk and return prediction, implementation costs critically matter. Unfortunately, predicting trading costs is challenging because the largest component for a large investor is price impact, which depends on the size of the trade, the amount traded by other traders in that security, and the identity of the trader, thus, impeding a generic solution.
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Day 10: Residuals [OSM]On Day 9 we conducted a walk-forward analysis on the 12-by-12 week lookback-look forward combination. We then presented the canonical the actual vs. predicted value graph with a 45o line overlay to show what a perfect forecast would look like. Heres the graph again. As noted previously, we limited the scale of the axes to make it easier to interpret. This omits some outliers, which well