[R-SIG-Finance] dynamic window size in rolling linear regression?

[Patrick Burns]

Let's think about what you are asking for.

You want to change the window size in order
(I presume) to get better predictions.  So
it seems to me that you would need a variable
that has information about the pertinence of
past data to the future.

I could imagine volatility being such a variable
in some circumstances.  I don't know of any
work along those lines -- I'd be interested to
hear of any.

My usual practice is to have weights that descend
linearly.  In comparison to exponentially decaying
weights this puts more weight on the older data,
and hence is often a more stable estimate.  It has
the advantage over equal weighting that the window
size is of less importance.

On 11/01/2012 17:11, Michael wrote:
> Hi all,
>
> In application of linear regression to financial time series, we always
> have a parameter which is the window size.
>
> It's clear that a lot of results are sensitive to this parameter...
>
> Is there a way to make this parameter dynamic, or are there statistical
> procedures to select such parameter dynamically and/or "optimally"?
>
>  From a trading strategy perspective, is there a way to make this parameter
> dynamically chosen?
>
> Thanks a lot!
>
> 	[[alternative HTML version deleted]]
>
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-- 
Patrick Burns
patrick at burns-stat.com
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