ADF Test and Half-Life with Python

I am reading Chen’s Algorithmic Trading and plan to rewrite the strategies in Python. This is the first post of this series. I’ll put the core code here. For the result and comparison with the original Matlab code please refer to my ipython notebook here.

For short, ADF test can be achieved by statsmodels.tsa.stattools.adfuller, and statsmodels.regression.linear_model.OLS can be used to fit a linear regression.

def adf_hl(price):
    """Calculate ADF test and Half-Life time.
    :param price: A pandas.Series of data.  
    :return: (adf test result, half-life, lookback)  
    """
    # ADF test
    adftest = ts.adfuller(price, maxlag=1)
    # Half-Life
    md = sm.OLS(price.diff(), sm.add_constant(price.shift()), missing='drop')
    mdf = md.fit()
    half_life = -np.log(2)/mdf.params[1]
    lookback = np.round(half_life)
    return adftest, half_life, lookback