Re: Market Model Thingy
Phone,
"What kind of assumptions are you using for execution prices?"
Sorry, what is an execution price?
Jimbo,
I ran three tests to see how the model compared to market fluctuation.
Imagine we have some amount of money, and opt to buy the top5 picks of the model everyday. Assume we use all of our money (ie. just for the sake of testing assume you can buy fractions of stocks), always buy at open and sell at close. Compare this to:
1) (Amount of money we started with) * (Total Market Value of Stocks at End) / (Total Market Value of Stocks at Start)
(ie. How much the entire test market went up)
2) Randomly buy 5 stocks on day 1, and hold them for 2000 days. (Do this test 1 million times)
3) Use the strategy of buying/selling 5 each day, but do so at random. (Do this test 1 million times)
By "outperforming the market" I mean that the model produced better than the market in test 1, and in a very high percentile of the 1 million results for test 2/3. Basically, I want to test to make sure any increase seen isnt the result of the average stock price going up.
The model produced results that were WAY WAY above average, but, given I didnt take transaction costs into account, the utility of the model is still unknown.
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