Resumen de Nonlinear forecasting of the gold miner spread: : An application of correlation filters

Christian L. Dunis, Jason Laws, Peter W. Middleton, Andreas Karathanasopoulos

• This paper models and forecasts the Gold Miner Spread from 23 May 2006 to 30 June 2011. The Gold Miner Spread acts as a suitable performance indicator for the relationship between physical gold and US gold equity.

  The contribution of this investigation is twofold. First, the accuracy of each model is evaluated from a statistical perspective. Second, various forecasting methodologies are then applied to trade the spread. Trading models include an ARMA (12,12) model, a cointegration model, a multilayer perceptron neural network (NN), a particle swarm optimization radial basis function NN and a genetic programming algorithm (GPA).

  Results obtained from an out-of-sample trading simulation validate the in-sample back test as the GPA model produced the highest risk-adjusted returns. Correlation filters are also applied to enhance performance and, as a consequence, volatility is reduced by 5%, on average, while returns are improved between 2.54% and 8.11% across five of the six models.