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I'm a newbie to econometrics. I've simply ran a regression and have coefficient values of the variables. I'm running a regression for a crypto data, and I've gotten the Spread of the variables. To forecast, I'll need to fit this spread into ARIMA AR(1) process after finding the best fit is AR(1).

This is the scenario. Configuring a tradable mean for a time series data is what I'm trying to achieve. The steps I've taken are creating a regression using OLS from the first difference of the time series data.

From this I got the tradable formula, which is a spread between the variables used. It's now time to forecast using ARMA model.

I created the ACF and PACF charts using the residuals from the OLS model, and got to know it's an AR(1) process.

If the spread of the difference between the variables I'll like to know how to fit the spread into this AR(1) process of ARMA.

Please, kindly help out.

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  • $\begingroup$ I think you need to explain what you mean by fitting the spread into your AR(1) model. You already fit the model; how can you then put the spread into that model after it is fitted? Also, it is not clear if you are trying to estimate performance in light of transactions costs, finding opportunities when trading would exceed costs of crossing the spread at entry and exit, or trying to use the spread to better predict prices even though bid-ask bounce is not tradable unless you are a market maker. It is not clear what you are trying to do, so it is not really possible to answer your question. $\endgroup$
    – kurtosis
    Sep 13, 2020 at 12:48
  • $\begingroup$ Thanks @kurtosis, I'm sure I'd got my language wrong as I'm just catching up with the keywords in quantitative statistics. Let me share this thesis in following with you. Probably I'm just playing with words inordinately. $\endgroup$
    – ken4ward
    Sep 13, 2020 at 12:56
  • $\begingroup$ This is the thesis in following. I'm sure you're right that I've already done this fitting. But I got confused when in the documents it's stated that spread is fitted into ARIMA AR (1) process. Please, what does that mean?researchgate.net/publication/… $\endgroup$
    – ken4ward
    Sep 13, 2020 at 12:59
  • $\begingroup$ It's page 10, table 6 on the page. Please help explain in layman's terms. Thanks. $\endgroup$
    – ken4ward
    Sep 13, 2020 at 13:00
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    $\begingroup$ Does this answer your question? Fitting a spread into ARIMA AR(1) $\endgroup$
    – LocalVolatility
    Sep 13, 2020 at 15:06

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