From the course: Algorithmic Trading and Finance Models with Python, R, and Stata Essential Training
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Model aging and obsolescence
From the course: Algorithmic Trading and Finance Models with Python, R, and Stata Essential Training
Model aging and obsolescence
- [Michael] For any algorithmic trading model you come up with, you're going to face a problem. If you have a strategy that works now, other people are going to find that strategy over time, and eventually your model will become obsolete. Let's take a look at a couple of examples in how you deal with this problem in practice. So we never know for sure what different strategies are being pursued by other algorithmic traders, but one nice opportunity to kind of find inspiration for strategies comes from looking at the finance research literature. So I've pulled up two studies, one from Lauren Cohen and Andrea Frazzini called "Economic Links and Predictable Returns," and you'll see this is... It's a couple decades old now, but it's a seminal paper and it's kind of an interesting one. And what they find is essentially that there's a link between firms and their customers. Specifically if we have a company that is selling products to other companies, well then, the earnings content, the…
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