

Google Search Terms predict market movements - twiecki
https://www.quantopian.com/posts/google-search-terms-predict-market-movements

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crntaylor
I've read both the Google Trends paper and the Wikipedia paper, and
implemented both of them. Two major things jumped out at me -

1\. They tried out 40-50 words in Google Trends and backtested all of them.
The word 'debt' is the one that performed best over the 7 year period of the
study. Does anyone think it's going to be the most profitable over the next 7
years? Similarly I could backtest 50 signals from a random number generator.
One of them is going to be the best over the past 7 years, but that tells me
nothing about its prospects for the next 7.

2\. Eyeballing the graph, about half their return comes from the last quarter
of 2008. This tells me (i) the signal just got lucky to be short in a period
where the market was tanking, and (ii) they don't have any risk controls. You
should _never_ be making 50% of your pnl in a period that represents only 1/30
of your sample. I'm willing to bet that the bootstrap value at risk of this
strategy is pretty poor.

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rwfilice
Point #1 is key. If you test enough terms retrospectively you'll find
something amazing. Prospective hypothesis testing is where you actually prove
something works (or not).

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fchollet
To the authors' credit, there seem to be a semantic pattern to the words that
show profitable predictive correlation with the DJIA. Point #2 seems more
significant to me... but yeah, I would agree.

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tdees40
Quick everybody, let's all trade this strategy immediately! We'll be rich!

Meh. There are a million of these things, and they all backtest great. It's
not really meaningful going forward though.

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fixxer
Few strategies are meaningful on these time scales. I don't like being in a
position for longer than 15 minutes... Makes my tummy hurt.

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pdog
I don't like being in a position for less than a year :)

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resu
A question about the Quantopian library...

Does order(c.security, -c.order_size) account for transaction costs, borrowing
costs and vwapping using a symbol specific profile based on volume and
volatility? Probably not a big deal for SPY, but would make more of a
difference for a larger portfolio.

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jbredeche
(I work at Quantopian)

You can specify a commission model (<https://www.quantopian.com/help#ide-
commission>) and a slippage model (<https://www.quantopian.com/help#ide-
slippage>).

Right now, you have to enter parameters into one of our pre-made models, but
soon (next week probably) you'll be able to write a custom model that uses
whatever inputs you'd like to calculate commission and slippage.

~~~
resu
That is awesome! Definitely saves users from doing a lot of extra work. I'll
definitely try Quantopian out!

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fchollet
The instant a meaningfully profitable strategy is disclosed, quants
incorporate it to their tools, which generates an arbitrage force that makes
it less efficient --and the strategy stops working right away.

I wonder if quants had noticed this kind of correlation prior to this result
being published in Nature. I suppose yes, it's pretty basic after all (even
Google have been promoting Google trends on their finance page as a heuristic
for trading, so someone must have done a systematic study a while ago already)

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eps
@d--b - your posts are auto-killed and appear [dead]

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yarou
Be extremely careful with this type of correlation. I had a colleague that
thought whatever Twitter sentiment was, would reflect the market at a given
point in time. However, this is a fallacy, as any "trend" in the market is
already priced in by the time you can react to it. I would strongly recommend
against anyone taking this type of strategy to be profitable in the medium or
long term.

