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The Role of Advanced Models in Performance Boosting

Published in Automated Trader Magazine Issue 08 Q1 2008

In the second part of a two-part article, David Aronson, President of Hood River Research, examines the modelling techniques used in arriving at a valuable predictor set for boosting ‘raw’ trading model performance.

The development of a boosting model is a two-stage process. The first is discovering which, if any, of the large list of candidate indicators proposed for consideration are helpful in predicting signal returns. The second is establishing the shape of the surface that best describes the relationship between the selected candidate indicators and signal returns. One widely used modelling technique is multiple linear regression, which assumes that the shape of the surface is linear (flat with no hills and valle

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