Understanding False Discovery Rate

False Discovery Rate is an unintuitive name for a very intuitive statistical concept. The math involved is as elegant as possible. Still, it is not an easy concept to actually understand. Hence i thought it would be a good idea to write this short tutorial.

We reviewed this important topic in the past, here as one of three Present-day great statistical discoveries, here in the context of backtesting trading strategies, and here in the context of scientific publishing. This post target the casual reader, explaining the concept of False Discovery Rate in plain words.

More

Why statistical bootstrap

I often write about bootstrap (here an example and here a critique). I refer to it here as one of the most consequential advances in modern statistics. When I wrote that last post I was searching the web for a simple explanation to quickly show how useful bootstrap is, without boring the reader with the underlying math. Since I was not content with anything I could find, I decided to write it up, so here we go.

More

Linking backtesting with multiple testing

The other day, Harvey Campbell from Duke University gave a talk where I work. The talk- bearing the exciting name “Backtesting” was based on a paper by the same name.

The authors tackle the important problem of data-snooping; we need to account for the fact that we conducted many trials until we found a strategy (or a variable) that ‘works’. Accessible explanations can be found here and here. In this day and age, the ‘story’ behind what you are doing is more important than ever, given the things you can do using your desktop/laptop.

More

Advances in post-model-selection inference (2)

In the previous post we reviewed a way to handle the problem of inference after model selection. I recently read another related paper which goes about this complicated issues from a different angle. The paper titled ‘A significance test for the lasso’ is a real step forward in this area. The authors develop the asymptotic distribution for the coefficients, accounting for the selection step. A description of the tough problem they successfully tackle can be found here.

The usual way to test if variable (say variable j) adds value to your regression is using the F-test. We once compute the regression excluding variable j, and once including variable j. Then we compare the sum of squared errors and we know what is the distribution of the statistic, it is F, or \chi^2, depends on your initial assumptions, so F-test or \chi^2-test. These are by far the most common tests to check if a variable should or should not be included. Problem arises if you search for variable j beforehand.

More