Cross-sectional ranks and ties
Question
What decisions must be documented when turning a daily signal into a cross-sectional percentile rank?
Short answer
Specify the point-in-time universe, treatment of missing values, tie method, minimum group size and the timestamp at which the cross-section is complete. Decide whether ranks are global or within groups such as industries. Apply the same convention in backtest and live processing. Ranks reduce sensitivity to magnitude and outliers but discard information about distances between signal values.
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