Faculty Digital Archive

Archive@NYU >
Stern School of Business >
CeDER Working Papers >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/28304

Title: Prediction in Financial Markets: The Case for Small Disjuncts
Authors: Dhar, Vasant
Keywords: Small disjuncts
predictive modeling
Machine learning
Time series prediction
Financial markets
Issue Date: 24-Sep-2009
Series/Report no.: CeDER-09-04
Abstract: Predictive models in regression and classification problems typically have a single model that covers most, if not all, cases in the data. At the opposite end of the spectrum is a collection of models each of which covers a very small subset of the decision space. These are referred to as “small disjuncts.” The tradeoffs between the two types of models have been well documented. Single models, especially linear ones, are easy to interpret and explain. In contrast, small disjuncts do not provide as clean or as simple an interpretation of the data, and have been shown by several researchers to be responsible for a disproportionately large number of errors when applied to out of sample data. This research provides a counterpoint, demonstrating that “simple” small disjuncts provide a credible model for financial market prediction, a problem with a high degree of noise. A related novel contribution of this paper is a simple method for measuring the “yield” of a learning system, which is the percentage of in sample performance that the learned model can be expected to realize on out-of-sample data. Curiously, such a measure is missing from the literature on regression learning algorithms.
URI: http://hdl.handle.net/2451/28304
Appears in Collections:CeDER Working Papers

Files in This Item:

File Description SizeFormat
Dhar Prediction April 2011.pdf3.11 MBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.

 

The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS