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

[Patrick Burns]

Throwing away data *is* good if the
process changes and that data is not
applicable to the future.

Exponential weights throw away lots of
data -- though they leave a very small
amount of weight (at least) for all
datapoints.

Pat

On 11/01/2012 18:08, riccardo visca wrote:
> What about using an expanding window with exponential weights to make
> the coefficients more adaptive? Throwing away data is not good.
> Still you need to have weights that are inverse of conditional variance
> to correct eteroschedasticity.
>
> It could be a lot more efficient computationally than Kalman and one
> could use robust or lasso, ridge, pls...
> Food for thoughts...
>
>
> ------------------------------------------------------------------------
> *Da:* Patrick Burns <patrick at burns-stat.com>
> *A:* r-sig-finance at r-project.org
> *Inviato:* Mercoledì 11 Gennaio 2012 17:35
> *Oggetto:* Re: [R-SIG-Finance] dynamic window size in rolling linear
> regression?
>
> 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 <mailto:patrick at burns-stat.com>
> http://www.burns-stat.com
> http://www.portfolioprobe.com/blog
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-- 
Patrick Burns
patrick at burns-stat.com
http://www.burns-stat.com
http://www.portfolioprobe.com/blog
twitter: @portfolioprobe