Posted By: Gene   Date: Thu May 31, 2007

Title: Shorter forecast period

Message:
 Your forecast period is 15 days. Why not something shorter?

Response:
We have found that the forecast accuracy falls off rather quickly if the horizon is less than about 15 trading days. We think that the market is just too efficient on a short time scale. When we looked at a 20 day forecast, we found that the forecast model was more accurate than with the 15 day horizon; however, the trading return was less. We think that a 15 day forecast horizon is optimum for accuracy and return.

That said, you should note that the trading model has a 5 day lookback period. This means that even though the forecast model has a 15 day horizon, the trading model is basing the trading position on what the forecast model said 5 days ago. We are working on a new forecast model that still has a 15 day forecast horizon but the optimum lookback is just two days. More on this later.