18 July 2017

He Who Is Blessed

An ongoing theme of these endeavors is that data analysis of human-defined processes is fraught with danger. Will Robinson!!! I've had a number of comments questioning the utility of quant in the realm of human processes spiked. Not gratuitous enough, I guess. Well, this post goes so far as to point out that even God's rules, while fixed, can lead to spikes up or down in the series.
In time series analysis, structural changes represent shocks impacting the evolution with time of the data generating process. That is relevant because one of the key assumptions of the Box-Jenkins methodology is that the structure of the data generating process does not change over time.

Take that, you giants of financial quant.

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