The ECO asset price model identifies signatures in price data indicating potential crashes or rallies and estimates the magnitudes, the probabilities, and the timing of expected moves. Lambda is an important predictor from the ECO modelling process that prescribes a weight for an asset in the near term. Lambda scores are generated weekly with scores ranging from -1 (short) to 2 (2X long). We show how lambda successfully timed allocations to a US stock sector index in the example below. The pro-forma returns shown are ex-ante, i.e., the ECO scores are published in advance and the subsequent returns are tracked “live.” The following graph shows the cumulative return for a US sector stock index using lambda as the asset weight. The actual index return is shown in black.
More examples are shown here.
The barplot below shows how lambda changes over time. The lambda score for the US Technology sector has been shifting with the volatility in equity markets as of late.
