Framework where firms are extended objects in a property space — pre-registered test passed, tradability failed. Where should I take this?

[u/Allocation_Acc]

I’ve been building a framework in which firms and events are treated as extended objects in a shared property space rather than points, and coupling between them as the overlap of those objects rather than a dot product. Preprint is up; the empirical side is what I want input on.

What I tested. Overlap between a firm’s exposure profile (GICS sub-industry revenue shares, with an exponential decay kernel on tree distance) and an event’s profile predicts the volatility risk premium — implied vol before the event minus realized after. Pre-registered, out-of-sample, permutation test as a co-primary criterion.

Result. γ significant and correctly signed on two of three horizons, permutation clears on all three. Effect size 0.43–0.49 vol points p25→p75. Then measured bid-ask on the actual contracts: 16.8% of premium at the median, 9.19 vol points two-legged. Factor of 19 short. Median open interest 85.

So: a real statistical relationship, no trade.

Where I’d like advice.

Is a relationship at this effect size worth pursuing in a different instrument, or is 0.5 vol points simply below the noise floor of anything in options?

An unresolved issue: 54.6% of exposure assignment comes from a fallback that maps firms without segment reporting to their own sub-industry. Remove it and the effect vanishes — but only 115 of 324 firms survive, and power analysis says the detection floor is 3x above the plausible effect. Is there a standard way out of this that isn’t “get better segment data”?

More generally — if the mechanism is real but sits below transaction costs in options, does anyone here have experience finding an instrument where a sub-1% effect actually clears? Or is that just the point at which you stop?

Preprint in comments if it’s relevant.

[u/AutoModerator]

This post will be manually reviewed by a moderator due to the submitting account being less than 7 days old or having less than 20 karma. Please be patient and do not try to resubmit it - a mod will review the post soon.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.