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@macrocephalopod

Paul Allen, Vice President M&A, Pierce & Pierce (Sie/Hir) | Vegan | Silence is Violence | Women’s Rights Are Human Rights | ACAB (Assigned Cephalopod At Birth)

Joined December 2020

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macrocephalopod‏ @macrocephalopod 12 Mar 2021

With some additional robustness checks and careful implementation of a simulator for fill prices, commissions etc you are well on your way to launching your first quant strategy.

1 reply 0 retweets 22 likes

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macrocephalopod‏ @macrocephalopod 12 Mar 2021

Only problem is that the price series is one I generated using 100% random noise, it is completely unpredictable by any signal. Congratulations, you now know how to overfit a backtest. Welcome to quant research.

30 replies 11 retweets 348 likes

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Rip‏ @zzzrrrzzz12 13 Mar 2021

Replying to @macrocephalopod

This is Shannon's Demon - you can get meaningfully positive ER by volatility pumping. Sure, it has issues (its basically short gamma) but what you found is "legit" and not an overfit.

1 reply 0 retweets 2 likes

macrocephalopod‏ @macrocephalopod 13 Mar 2021

Replying to @zzzrrrzzz12

No it really is an overfit.

1 reply 0 retweets 3 likes

Rip‏ @zzzrrrzzz12 13 Mar 2021

Replying to @macrocephalopod

The fact you chose 7 days is an overfit. However, the fact you see positive Sharpe at any horizon is because of Shannon's demon. @breakingthemark

1 reply 0 retweets 2 likes

macrocephalopod‏ @macrocephalopod 13 Mar 2021

Replying to @zzzrrrzzz12 @breakingthemark

This is further proof to me that the “shannon’s demon” crowd are actually insane.

2 replies 0 retweets 3 likes

macrocephalopod‏ @macrocephalopod 13 Mar 2021

Replying to @macrocephalopod @zzzrrrzzz12 @breakingthemark

Shannon’s demon needs +ve arithmetic return but flat or negative geometric return. I generated this data myself so I know it has zero arithmetic return! The fact that you would argue with me about data *that I made up* is simply a confirmation that you are an idiot.

2 replies 0 retweets 4 likes

Matt Hollerbach‏ @breakingthemark 13 Mar 2021

Replying to @macrocephalopod @zzzrrrzzz12

To be fair, you started the thread portraying the data as a real stock, and not a random stream you made up. What's the volatility of the actual data, and I assume it's daily data?

3 replies 0 retweets 0 likes

macrocephalopod‏ @macrocephalopod 13 Mar 2021

Replying to @breakingthemark @zzzrrrzzz12

The entire point is that it’s a bait and switch! There is absolutely no way that you can read the entire thread and conclude “yes, it would be possible to make money from this” unless you are a moron. It’s 1%/day volatility zero arithmetic drift geometric brownian motion.

1 reply 0 retweets 2 likes

Adam Goldstein‏ @goldstein_aa 13 Mar 2021

Replying to @macrocephalopod @breakingthemark @zzzrrrzzz12

Well, I'd like to think I'm not a moron, and it wasn't clear to me the arithmetic mean was 0 until you explicitly said so. Maybe that was immediately clear to non-morons before you said so?

1 reply 0 retweets 1 like

macrocephalopod‏ @macrocephalopod 13 Mar 2021

Replying to @goldstein_aa @breakingthemark @zzzrrrzzz12

Mean zero is the *best case* for the strategy I described! If mean > 0 then a reversion strategy is short more often than long so it would lose money. If mean < 0 then a reversion strategy is long more than it is short so it would lose money.

3:54 PM - 13 Mar 2021

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