Just finished reading the set of papers titled Developments in Forecast Combination and Portfolio Choice, since it's due tomorrow. (I'm a bit lazy currently><) Some of points I came to:
- The difficulty of calculating downside standard deviation of a portfolio: Hmm...I've never realized such issue, maybe because I use absolute deviation directly... gonna check the model file later.
- If buying on margin, downside SD is not enough to control the risk, VAR here should be brought in as an constraint to possible margin calls.
- Unanimous vote vs. majority vote: why the former leads to a better result in selection? Should I use?
- The idea of using accounting variables and nonaccounting varialbes are inspiring. I decide to use them as part of the inner personalities instead of as the front-end screening module as designed before.
- Most trading system described still haven't address the issue of transaction costs. Moreover, our in-develop system has advantages on continous learning, portfolio-oriented (instead of single stock), and providing clear trading instructions.
- The philosphy behind a model is much more critical than the algorithm used to implement it.