Good and bad books on strategy design?

Where does this idea come from that the emphatically nonstationary can be made stationary via some magical combinatrion of transformations? Is there evidence to back this up?

 

Just to clarify... ARIMA can model non stationary series.
Hence, the I=Integrated in AR-I-MA.

 

this is the whole motivation for cointegration.

 

yes taking the first difference is one type of a transformation.

 

blackbox

 

hedging is a pairs trade.

 

So have you successively used ARIMA as part of a trading strategy?

 

Haven't been working with ARIMA specifically but I'm close to a system that uses time series models + microstructure considerations. I think the combination is likely a good way for retailers to compete with the big boys.

 

Just out of curiosity, how many data points does your model require to work? For example, all the experts seem to agree that a minimum of 50 data points is required to create an acceptable ARIMA model.

 

Like I said I haven't used ARIMA models so I can't help you there. In general, you can get confidence levels on your parameter estimates for your model and that should tell you whether you have a good estimate or bad, not a universal cutoff on the number of training points.