Machine learning for financial prediction: experimentation with David Aronson's latest work – part 1

The results are a little different to those obtained using RMSE as the objective function. The focus is still well and truly on the volatility indicators, but in this case the best cross validated performance occurred when selecting only 2 out of the 15 candidate variables. Here's a plot of the cross validated performance of the best feature set for various numbers of features: The model clearly performs better in terms of absolute return for a smaller number of predictors. Performance bottoms at 8 predictors and then improves, but never again achieves the performance obtained with 2-4 predictors. This is consistent with Aronson's assertion that we should stick with at most 3-4 variables otherwise overfitting is almost unavoidable.