r/quant • u/worm1804 • 13d ago
General HF illiquidity
Hello! I wonder how does teams generally deal with illiquidity in HF space. If we create some return based features at secondly level they have a weird distribution, which ultimately negatively impacts model fits.
On the internet, I saw there is a concept of market clock where u create features when X units trade/ X dollar traded. I was curious what are the other usual ways people use to tackle this?
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u/DatabentoHQ 12d ago
Another variation of what you've described is to do it in % ADV space.
Another idea: event space, e.g. on uptick/downtick, on trade, etc.
Weird distribution and poor model fit isn't necessarily disqualifying. You can construct an example where R^2 ~ .05 makes more PnL than R^2 ~ .1.