What Is Prediction horizon?
The prediction horizon is the interval between the time a forecast is made and the end of the outcome it predicts. In trading, it usually defines the holding period of a forward return, such as one day, five trading days, or one month. The horizon should be aligned with the rebalance schedule, execution assumptions, and expected signal decay.
Changing the prediction horizon changes the learning problem and the trade-off between signal persistence, turnover, and transaction costs. Models and backtests should report it explicitly and use the same horizon when training, evaluating predictive accuracy, and constructing portfolios.
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