Cross Validation (CV) is not a novel topic, but from my experience as both a data scientist and front desk practitioner, it is a statistical tool often underappreciated and misused. I believe that innumerous bad trading ideas could have been discarded had they been handled with due statistical care. So this blog is both a cautionary tale and a quick reference to modern CV methods in finance. We will cover the following topics:
- Embargoing
- Purging
- Backtesting through Cross Validation -...