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# Category Archives: Econometrics

## Identifying Drivers of Trading Strategy Performance

Building a winning strategy, like the one in the e-Mini S&P500 futures described here is only half the challenge: it remains for the strategy architect to gain an understanding of the sources of strategy alpha, and risk. This means identifying … Continue reading

Posted in Econometrics, Machine Learning, Mean Reversion, Momentum, Performance Testing, Strategy Development, Systematic Strategies, Volatility Modeling
Tagged Mean Reversion, Momentum, Strategy Performance, Volatility
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## Measuring Toxic Flow for Trading & Risk Management

A common theme of microstructure modeling is that trade flow is often predictive of market direction. One concept in particular that has gained traction is flow toxicity, i.e. flow where resting orders tend to be filled more quickly than expected, while … Continue reading

Posted in Algorithmic Trading, ARMA, Direction Prediction, Econometrics, Econophysics, Forecasting, High Frequency Finance, Market Microstructure, Order Flow, Risk Management, Time Series Modeling, Toxic Flow
Tagged Forecasting, Market Microstructure, Order Flow, Toxic Flow
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## Forecasting Financial Markets – Part 1: Time Series Analysis

The presentation in this post covers a number of important topics in forecasting, including: Stationary processes and random walks Unit roots and autocorrelation ARMA models Seasonality Model testing Forecasting Dickey-Fuller and Phillips-Perron tests for unit roots Also included are a number … Continue reading

Posted in ARMA, Econometrics, Forecasting, Purchasing Power Parity, Time Series Modeling, Unit Roots, White Noise
Tagged ARMA Models, Box Jenkins, Direction Prediction, Forecasting, Purchasing Power Parity, Time Series Analysis
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## Master’s in High Frequency Finance

I have been discussing with some potential academic partners the concept for a new graduate program in High Frequency Finance. The idea is to take the concept of the Computational Finance program developed in the 1990s and update it to … Continue reading

Posted in Algorithmic Trading, Econometrics, Education, Financial Engineering, Graduate Programs, High Frequency Finance, High Frequency Trading, Market Microstructure
Tagged Algorithmic Trading, Education, Financial engineering, Graduate Programs, High Frequency Finance, High Frequency Trading, Market Microstructure
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## A Practical Application of Regime Switching Models to Pairs Trading

In the previous post I outlined some of the available techniques used for modeling market states. The following is an illustration of how these techniques can be applied in practice. You can download this post in pdf format here. The chart … Continue reading

Posted in ARMA, Econometrics, ETFs, Markov Model, Mean Reversion, Pairs Trading, Regime Switching, Statistical Arbitrage
Tagged ETFs, Kalman Filter, Markov Model, Pairs Trading, Regime Switching, Statistical Arbitrage
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## Regime-Switching & Market State Modeling

The Excel workbook referred to in this post can be downloaded here. Market state models are amongst the most useful analytical techniques that can be helpful in developing alpha-signal generators. That term covers a great deal of ground, with ideas … Continue reading

Posted in ARMA, Econometrics, Fat Tails, Forecasting, Markov State Models, Regime Shifts
Tagged ARMA Models, Forecasting, Markov State Models, Regime Shifts
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## Volatility Forecasting in Emerging Markets

The great majority of empirical studies have focused on asset markets in the US and other developed economies. The purpose of this research is to determine to what extent the findings of other researchers in relation to the characteristics of … Continue reading

Posted in Asian markets, Cointegration, Econometrics, Emerging Markets, FIGARCH, Forecasting, Fractional Cointegration, Fractional Integration, Granger Causality, Hurst Exponent, Long Memory, REGARCH
Tagged ARFIMA, Emerging Markets, Fractional Cointegration, Fractional Integration, Granger Causality, KOSPI, Long Memory, MultiFactor Models, REGARCH, Regime Shifts, Volatility
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## Resources for Quantitative Analysts

Two of the smartest econometricians I know are Prof. Stephen Taylor of Lancaster University, and Prof. James Davidson of Exeter University. I recall spending many profitable hours in the 1980’s with Stephen’s book Modelling Financial Time Series, which I am … Continue reading

Posted in Econometrics, Forecasting, Time Series Modeling
Tagged Econometrics, Forecasting
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