This is a summary of links featured on Quantocracy on Thursday, 11/07/2024. To see our most recent links, visit the Quant Mashup. Read on readers!
-
Day 15: Backtest II [OSM]On Day 14 we showed how the trading model we built was snooping and provided one way to correct it. Essentially, we ensure the time in which we actually have the target variable data aligns with when the trading signals are produced. We then used the value of the next time step to input into the model to generate a forecast. If the forecast was positive, wed go long the SPY ETF, if negative
-
A time-varying-parameter vector autoregression model with stochastic volatility [Quant Insti]The basic Vector Autoregression (VAR) model is heavily used in macro-econometrics for explanatory purposes and forecasting purposes in trading. In recent years, a VAR model with time-varying parameters has been used to understand the interrelationships between macroeconomic variables. Since Primiceri (2005), econometricians have been applying these models using macroeconomic variables such as:
-
Day 14: Snooping [OSM]Guess what? The model we built in our last post actually suffers from snooping. We did this deliberately to show how easy it is to get mixed up when translating forecasting models into trading signals. Lets explain. Our momentum model uses a 12-week cumulative return lookback to forecast the next 12-week cumulative return. That may have produced a pretty good explanatory model compared to the