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Built a Volatility Regime ML Predictor scoring 0.90+ OOS AUC across Equities & Precious Metals. Looking for methodology and blindspots
Hey everyone,
I've been researching in my free time and come across some research paper and start developing supervised machine learning pipeline designed to predict Vol-Regime (Expansion vs. Compression) rather than directional price. The objective is to utilize this as a master regime filter: when the model predicts high probability of variance expansion, it would utilize is trend model logic and reduces sizing; during variance compression, it toggles to mean-reversion logic and scales up.
I’ve been extremely paranoid about lookahead bias and data leakage. I wanted to present my exact methodology here and ask if the community sees any glaring blindspots or hidden leakage I might have missed
The Setup:
- Data: 10 years of Equities (~62k obs) and 17 years of Gold (~99k obs, to test cross-asset generalization with zero hyperparameter changes).
- Features: High-frequency volatility estimators (Garman-Klass, Rogers-Satchell), structural variance (RiskMetrics, HAR), and microstructure flow (volume acceleration, VWAP dev).
- Target (Label): 4-period forward Garman-Klass realized variance. I use a strict multi-period embargo before the forward window starts to sever the t vs t+1 boundary overlap artifact.
- Validation: Custom 3-Zone Purged Walk-Forward Splitter (Train -> 40-bar Embargo -> Validation -> 40-bar Embargo -> OOS Test). 312 sequential folds tested.
The result:
- Equities (15-month unseen holdout): LightGBM AUC: 0.9526 (Linear LR Baseline: 0.9501)
- Gold (24-month unseen holdout): LightGBM AUC: 0.9081 (Linear LR Baseline: 0.8894)
Question:
- An OOS AUC of 0.95 on equities usually screams leakage, but since I am predicting variance (which clusters mathematically) rather than price direction, is an AUC in the 0.90s actually realistic?
- Any specific statistical stress-tests you'd recommend before taking this live?
Gold Final Holdout: 0.90+ AUC across 17 years of OOS
u/International_Net716 — 4 days ago