date alignment issue

[afmass]

As currently written in this repo, the Month_1.Rdata produced by run_Factor_Model_HB_selection.R corresponds with December 2001 yet Month_1.Rdata used in Back_Testing.R corresponds to December 2005. This seems like it is not plausible. The troubling part that I don't understand is that I was able to reproduce your plots used in your article from the code based on the discrepancy. What do I not understand here?

Note that this doesn't change the fundamental result you stated that BO demonstrates model inefficiency.

[sourish-cmi]

In Lines 20-24, of run_Factor_Model_HB_selection.R training and testing periods are being defined.

date.start.month <- seq(as.Date("2001-12-01"),length=200,by="months")
date.end.month <- seq(as.Date("2002-01-01"),length=200,by="months")-1

tst.dt.start.mnth <- seq(as.Date("2002-01-01"),length=200,by="months")
tst.dt.end.mnth <- seq(as.Date("2002-02-01"),length=200,by="months")-1

Now you take first period j=1 then you have:

## First Training period 
> date.start.month[1]
[1] "2001-12-01"
> date.end.month[1]
[1] "2001-12-31"

## Test period corresponding first training period
> tst.dt.start.mnth[1]
[1] "2002-01-01"
> tst.dt.end.mnth[1]
[1] "2002-01-31"

Then if you look at Line 35, for j=1 it will take the above date.start.month[j] and date.end.month[j]

check<-Factor_Model_HB_selection(start=date.start.month[j],end=date.end.month[j],nmc=1000,burn=500,month_id=j)

It generates the output for this specific month. This output goes into the Factor_Model_HB_Back_testing.R as input and build the portfolio using the highest posterior estimates of the P(α > 0| data) for ns(=25) stocks. It computes the portfolio return for next month i.e.,

> tst.dt.start.mnth[1] --> "2002-01-01"
> tst.dt.end.mnth[1] --> "2002-01-31"

(as out-of-sample or test-sample portfolio return).