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    Preprocessing Steps: 1. Standardization On The Data

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    Dooja Sedali
    1. The document describes the preprocessing steps for a stock prediction model, including cross-sectionally ranking stocks and standardizing the data, splitting data into training, validation, and testing sets, and handling missing values. 2. It also discusses including interaction features like book-to-market ratios in the model and duplicating infrequently reported data. 3. An important aspect of the model's performance metric, R2, is that the denominator is the sum of squared excess returns compared to a naive model that always predicts zero, rather than a benchmark model, because predicting excess returns based on historical averages tends to underperform that naive forecast.

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    Preprocessing Steps: 1. Standardization On The Data

    Uploaded by

    Dooja Sedali
    4 views3 pages
    1. The document describes the preprocessing steps for a stock prediction model, including cross-sectionally ranking stocks and standardizing the data, splitting data into training, validation, and testing sets, and handling missing values. 2. It also discusses including interaction features like book-to-market ratios in the model and duplicating infrequently reported data. 3. An important aspect of the model's performance metric, R2, is that the denominator is the sum of squared excess returns compared to a naive model that always predicts zero, rather than a benchmark model, because predicting excess returns based on historical averages tends to underperform that naive forecast.

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    GKX

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    1. The document describes the preprocessing steps for a stock prediction model, including cross-sectionally ranking stocks and standardizing the data, splitting data into training, validation, and testing sets, and handling missing values. 2. It also discusses including interaction features like book-to-market ratios in the model and duplicating infrequently reported data. 3. An important aspect of the model's performance metric, R2, is that the denominator is the sum of squared excess returns compared to a naive model that always predicts zero, rather than a benchmark model, because predicting excess returns based on historical averages tends to underperform that naive forecast.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    4 views3 pages

    Preprocessing Steps: 1. Standardization On The Data

    Uploaded by

    Dooja Sedali
    1. The document describes the preprocessing steps for a stock prediction model, including cross-sectionally ranking stocks and standardizing the data, splitting data into training, validation, and testing sets, and handling missing values. 2. It also discusses including interaction features like book-to-market ratios in the model and duplicating infrequently reported data. 3. An important aspect of the model's performance metric, R2, is that the denominator is the sum of squared excess returns compared to a naive model that always predicts zero, rather than a benchmark model, because predicting excess returns based on historical averages tends to underperform that naive forecast.

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    of 3

    GKX:

    Preprocessing steps:
     Every stock is cross sectionally ranked
    1. Standardization on the data
    Usual method: subtract mean and divided by standard deviation
    Paper: cross-sectionally ranked and mapped

    2. Train test split


    a. 18 Y training
    b. 12Y for validation and tuning parameters
    c. 30 Y testing
    No cross validation
     Neural networks + CV = extensively computationally expensive
     Respect the time series dimension
    3. Missing Values
    a. ??
    4. Interactions
    a. Not only stock characterisitcs but also cross products like Book to market
    ratio
    Duplicating infrequently reported data to match the most frequently
    reported data
    GKX 1.8 Performance evaluation

    Important aspect of GKX R2 is the denominator is the sum of squared excess returns without
    demeaning i.e. demeaning is when you compare the variance of erros against the errors of
    the bench mark model. In GKX they compare the prediction errors to the sum of simple
    model that always predicts zero because predicting future excess returns with historical
    average tend to typically underperform the naïve forecast of zero (GKX, 2020)

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