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Statistics in finance, economics, engineering. Actuarial science. Econometrics. Operations research.enSat, 25 Oct 2014 11:11:27 GMTvBulletin60http://www.talkstats.com/images/misc/rss.pngStatistics Help @ Talk Stats Forum - Applied Statistics
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Two-Step Conditional Logit Model In Horse-Racing
http://www.talkstats.com/showthread.php/58191-Two-Step-Conditional-Logit-Model-In-Horse-Racing?goto=newpost
Fri, 24 Oct 2014 20:44:14 GMTI'm reading "Comparing the effectiveness of one- and two-step conditional logit models for predicting outcomes in a speculative market" by Johnson and Sung (2007). The paper can downloaded as a .pdf here:

The part that I am having a problem with is the 2-step model. Can someone here explain more clearly the mechanics of this model? In particular, I have these questions:

1. I understand each fundamental and market variable is weighted, but how are these variables scaled? In "raw" form or in z-score form?

2. I'm very confused about the "explosion" process. In a practical sense, how do I select the best horse from the explosion process? It all seems unclear to me.

3. Would someone be able to walk me through the process of calculating a "winner" in a made-up numerical example?

I've been trying to work with this model for weeks, but my own sample is yielding consistently negative returns using this process. Thanks!
]]>Applied Statisticsjschatthttp://www.talkstats.com/showthread.php/58191-Two-Step-Conditional-Logit-Model-In-Horse-Racing