FIRE'd@51
Thinks s/he gets paid by the post
- Joined
- Aug 28, 2006
- Messages
- 2,433
We all know that the rolling 30-year periods used in FireCalc are not statistically independent due to data overlap.
I'm not a statistician, but I've become increasingly concerned that the SWR success rates from FireCalc may be significantly overestimated, due to this overlap which introduces significant serial correlation into the data series. I do know that serial correlation introduces a downward bias in a standard deviation calculation, and it's standard deviation that leads to the success probabilities. This may partially explain why Monte Carlo simulations, which use a standard deviation calculated from non-overlapping data intervals (e.g. annual returns) tend to give lower SWR's than FireCalc. IOW, I'm suggesting that a 4% SWR could actually lead to a significantly lower success rate than 95% due to this data overlap effect; and, since we really don't know what the probability of success is, one should rely upon the FireCalc SWR that has never failed.
I'm not a statistician, but I've become increasingly concerned that the SWR success rates from FireCalc may be significantly overestimated, due to this overlap which introduces significant serial correlation into the data series. I do know that serial correlation introduces a downward bias in a standard deviation calculation, and it's standard deviation that leads to the success probabilities. This may partially explain why Monte Carlo simulations, which use a standard deviation calculated from non-overlapping data intervals (e.g. annual returns) tend to give lower SWR's than FireCalc. IOW, I'm suggesting that a 4% SWR could actually lead to a significantly lower success rate than 95% due to this data overlap effect; and, since we really don't know what the probability of success is, one should rely upon the FireCalc SWR that has never failed.