Chapter 7 · Section 1 practice

Learning to Rank

0 of 2 answered

These questions review the examples in the companion slides. Choose an answer, then check the explanation.

Question 1

Take a prediction \(\hat y\) and replace it by \(3\tanh(50\hat y)\) — strictly increasing, very different values. What happens to the top-20 / bottom-20 portfolio and to the MSE?

  • Both change — the portfolio depends on the size of the predictions
  • Portfolio changes, MSE is unchanged
  • Portfolio is identical, MSE can change by orders of magnitude
  • Nothing changes — MSE is invariant to monotone transforms

Question 2

Replacing ret_next by its within-month percentile changes…

  • Nothing — a linear model on ranks has the same order of predictions as a linear model on returns
  • The weighting of months: the ±80 % months no longer dominate the fit
  • The model class — ranks require a classifier
  • The features — they must be ranked too