Market Model Thingy

[crazy canuck]

One easy way to check your code is to generate random data with 0 mean returns:

e.g. rand(m,n)-0.5 in matlab with m,n desired size

and see if your code generates profit (of course it shouldn't). This is not foolproof, but it's quick.

Then, you could remove stocks that have low market caps or low daily volume. Transaction cost/slippage could be fairly high for small stocks so much of your excess return could come from these.

Also, small stocks can have sick drawdowns. So if you hold a portfolio of these, you'd have to assume that some of your money is in cash. This would reduce the returns.

Also, you migh want to use pinv() instead of regress() function...sometimes it makes a difference. Same thing, just more stable numerically.