Forecasting 1999 - Testing Strategies

Forecasting 1999 - Testing Strategies - Forecasting...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Copyright © 1999-2006 Investment Analytics Forecasting Financial Markets – Testing Strategies Slide: 1 Forecasting Financial Markets Testing Strategies
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Copyright © 1999-2006 Investment Analytics Forecasting Financial Markets – Testing Strategies Slide: 2 Overview ¾ Measuring Estimator Performance ¾ Measuring Profitability ¾ Equity Curve Measures ¾ Portfolio Performance Measures
Background image of page 2
Copyright © 1999-2006 Investment Analytics Forecasting Financial Markets – Testing Strategies Slide: 3 Measuring Estimator Performance ¾ Correlation coefficient ¾ Theil’s information coefficient ¾ Akaike information criteria ¾ Schwartz Bayesian information criterion ¾ Average relative variance ¾ Directional change predictor ¾ Bull-bear statistic
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Copyright © 1999-2006 Investment Analytics Forecasting Financial Markets – Testing Strategies Slide: 4 Correlation Coefficient ∑∑ == = = n i n i i i n i i i f f y y f f y y R 11 2 2 2 1 2 ) ( ) ( ) )( ( ¾ Most Common Measure of Prediction Accuracy ¾ Adjusted R 2 = R 2 (n+k) / (n-k) ± Penalizes for model complexity k is the number of model parameters
Background image of page 4
Copyright © 1999-2006 Investment Analytics Forecasting Financial Markets – Testing Strategies Slide: 5 Theil’s Information Coefficient ¾ Advantages vs. standard measures ± Comparison with naïve forecast (f t+1 = y t ) ± Considers disproportionate cost of large errors (in MSE) ± FPE t+1 = (f t+1 - y t ) / y t (forecast relative change) ± APE t+1 = (y t+1 - y t ) / y t (actual relative change) = + = + + = + = + + = = 1 1 2 1 1 1 2 1 1 1 1 2 1 1 1 2 1 1 ) ( n t t t t n t t t t n t t n t t t y y y y y f APE APE FPE U
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Copyright © 1999-2006 Investment Analytics Forecasting Financial Markets – Testing Strategies Slide: 6 Interpretation of Theil’s U-Statistic ¾ U = 1 ± Naïve method is as good as technique being evaluated FPE t+1 = 0; so f t+1 = y t , as for naïve method ¾ U < 1 ± Technique is better than naïve method Since FPE t+1 < APE t+1 Smaller U the better ¾ U > 1 ± Naïve method will produce better results Since FPE t+1 > APE t+1
Background image of page 6
Copyright © 1999-2006 Investment Analytics Forecasting Financial Markets – Testing Strategies Slide: 7 Average Relative Variance (Mean Reversion) ¾ Trivial Predictor: Historical Mean With T µ < 1 the forecasting method is making better predictions than simply predicting the mean 2 1 1 1 2 ) ( ) ( = + = = n t t n t t t y y f y T µ
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Copyright © 1999-2006 Investment Analytics Forecasting Financial Markets – Testing Strategies Slide: 8 Akaike Information Criteria ¾
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 11/04/2011 for the course ECON 421 at CUNY York.

Page1 / 30

Forecasting 1999 - Testing Strategies - Forecasting...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online