I am looking to compare the ex-ante predictions against the post values. I am using a look back period of ranges from 1 year to 5 years to construct my covariance matrix that I am using for my ex-ante predictions (calculation below). I am unsure of how to determine the best look back period?
te_ante = sqrt(relative_wgts * cov_matrix * relative_wgts') * sqrt(4)
- I'm calculating the te_ante every quarter hence the sqrt(4) to give me an annualised te_ante.