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The week's question
In March 2025, in the thread "Re: OT, out", Umm asked the members: "Do you think it is because America is made up of magical soil that makes businesses based in America magically profitable?" This week it is put to everyone again. The button below opens the small thread re-asking it - read what others have said so far, then give your own answer as an ordinary reply.
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Investment Strategies / Mechanical Investing
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Author: anchak   😊 😞
Number: of 6243 
Subject: Re: ML for MI
Date: 06/27/24 10:27 AM
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FC.... "And, (extremely simplistically), the causal relationships have changed over time and will continue to change over time."

Correct and technically - deadly statement = Non-Stationarity
and puts a spanner in the works for most common methods.

In most cases - one has to work with at least temporal stationarity assumption. The problem with that is "then what?"

There are 2 options - at least what I have tried ....

(1) Staged model - try to built a time series model ( you can use your method of choice , although LSTMs are known to beat ARIMAs but its typically not by much , I have stuck to ARIMAs) to handle the time variance and then assume stationarity for the rest.

This one is very flexible but the issue is forward forecast - you dont really know what really is changing on the LT horizons. Really only useful for simulations etc to understand HOW MUCH of a spanner damage it can cause. Additionally if you assume migrating errors - almost all bets are off ( Some people will say GARCH - you can try that - but its all more and more complexity and tons of assumptions - which may or may not hold)

(2) Or incorporate Time variance regressors in the the main model itself. This assumes the time variance itself is a bit stable ( This works for very Short Term types of situations)

NET MSG: Non-Stationarity is a bane - anyone saying its not , well ......
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This community has written 6,227 posts about Mechanical Investing. The article-length ones it recommended most:
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