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Indeed, I've found the modified VR test as well to be really useful.. it can also be used to find the optimal length of rolling windows or moving avg lengths.. although I haven't read any papers using it for that. Many traders seem to deride any academic stuff as "useless" but there is a lot...

Yes of course, I laugh when I still see people trying to find "patterns" in daily closing prices, open, high, low, etc etc. It's kind of sad really.

Exactly. Of course gathering statistics is always after-the-fact. But, when you gather stats over a sufficient period of time and can apply robust statistical tests to see if the stats are stable, due to chance, whatever, can greatly help you apply confidence intervals for the forecasting into...

Yeah, very true, there are things related to profitible ideas that won't spill the beans. Of course no one really wants to talk about their core strategy. Variance ratios, parksin numbers, exponents, etc are all just measures that can be used to screen strategies, do "post-moterm", etc. I...

The markets are mostly random.. 95% or more. If they were 100% random then none of us should be trading at all.. better off playing roulette. It depends on your defintion of random I think... randomness is not a binary value e.g. completely deterministic or completely random but somewhere...

At what time frame are you guys trading these pairs?

It allows you to see trending vs. random vs. mean reverting series visually and provides pretty good tests for it. For insance, it is really useful for seeing if spreads are stable.

How could they *possibly* tell who is looking at level II? As far as the second question, I don't know.

Found a very good paper here.. Extending the variance ratio test to visualize structure in data: an application to the S&P 100 Index.pdf

Here is a variance ratio profile for 30 days.. shows that the dow is slightly mean-reverting and the FTSE is slightly trending and then completely random after 20 days or so. Of course this is a small sample so take it with a grain of salt.. there are some confidence bounds around those...

Well, if the Runs Test works then the Variance Ratio testw ill definately work as the VR test is probably much more academic in nature.. of course you can always draw lines on some random walk and call that a "trend" but these tests help you determin if you are drawing "real" trend line or are...

Thanks for the ref. I've put it on my wish-list... is it only applicable to options or can it be interpreted more generally?

Interesting. Which book did he publish this stuff in?

That looks interesting but seems it only applies to coin-flip scenarios and doesnt take into account volatility.

Maybe im confused.. but that sounds like the same exact thing. You take the volatility of two overlapping periods.. 3. cases - Ratio rises above 1 as horizon increases.. mean aversion/trending - Ratio stays around 1 as horizon increases.. random walk - Ratio approachses 0 as horizon...

Variance Ratio: A measure of the randomness of a return series. Variance ratio is computed by dividing the variance of returns estimated from longer intervals by the variance of returns estimated from shorter intervals, (for the same measurement period), and then normalizing this value to one...

Custom

Found this old thread.. anyone here doing synthetic pair trading? E.g. some linear combination of stocks moving along with another real (or synthetic basket).

Trends don't exist until after the fact in non-stationary(random) series, which prices are according to statistical tests. Now, if you have a stationary/mean reverting series so that a long-term average does exist and the series has finite variance, then you can trade it all day long...

New age horse shit. Nothing more. Accept that you cannot know the nature of the universe and move on to more practical matters.