The process of evaluating a strategy, theory, or model by applying it to historical data.
1
vote
2answers
200 views
backtesting options strategies in R
I would like to backtest an options strategy in R. I require the ability to delta hedge and rebalance to options in the portfolio at different frequencies (daily, monthly,etc.) What packages are the ...
-2
votes
1answer
124 views
How to test the efficiency of Exponential Moving Averages as a trading startegy? [closed]
I would like to know how I can test the efficiency of Exponential Moving Averages when it comes to forex trading. Can i have any papers that point to the efficiency of this strategy?
Thank you. :)
3
votes
0answers
96 views
Quant/Stat Factor Performance Website/Distribution?
Does anyone know of a decent quant/stat factor website, distribution(public or private) or publication that tracks performance of "many" of traditional quant/stat factors? By that I mean would show ...
1
vote
0answers
79 views
analyze strategy performance with given matrix of weights/time and weekly returns in R
I have a matrix of 259 weekly returns, 50 assets and a portfolio composition for each of the 259 weeks. I would like to test the performance of the portfolio during 52 weeks, rebalancing every 12 ...
0
votes
0answers
65 views
Volatility of a rolling window strategy
What methods can be applied to determine the volatility of strategy using a rolling window? Using normal standard deviation would bias the results as the returns will be highly correlated. Although, ...
2
votes
1answer
102 views
t-statistics for the mean return, using Newey-West standard errors
I have seen that in several papers, where the aim was to evaluate the performance of a certain investment strategy, they use t-statistics to test for significance in the results. However, this seems a ...
3
votes
2answers
208 views
Software for backtesting outside strategies (CSV transaction upload)
I've developed some software which generates sets of trades, and I'd like to backtest those trades. My software currently outputs a CSV file with details of each trade:
...
2
votes
1answer
111 views
backtesting a 5% quantile model of a discrete value random variable?
If a random variable is discrete, and we are interested in its quantile value, how to define a proper back testing procedure?
For example, the underlying variable with a discrete value is
$$
...
5
votes
0answers
142 views
VaR model Unconditional Coverage Tests: Is this extension of Kupiec POF test correct?
Background: Kupiec P. in 1995, published paper "Techniques for Verifying the Accuracy of Risk Management Models" on Journal of Derivatives, v3, P73-84, it's a Unconditional Coverage Tests designe for ...
6
votes
1answer
329 views
What different methods of pairs selection exists? (For Pairs trading)
(I'm quite new to quant finance so I'm not sure if this is an eligible question.)
I've decided I want to backtest pairs trading on the Nordic stockmarket. So I would guess there exists different ...
3
votes
1answer
167 views
How do you estimate the capacity of a strategy from historical data?
What are some good ways to estimate the capacity of a strategy from historical data (including full market depth)?
Obviously, a naive approach is that you want the strategy's returns to exceed its ...
4
votes
2answers
213 views
How to reactivate a risk mangement rule in an automated process
If some conditions are met (stop loss, trailing stop, take profit...) we will close ours positions (sell/buy) to avoid having more loss or to ensure profit. In an automatic trading system, it is easy ...
2
votes
1answer
230 views
desk's performance
I need your point of view in evaluating the monthly performance of a desk.
I have the daily
credit risk capital requirement (A);
the net banking income or GNP (B).
What is the best measure of ...
4
votes
1answer
303 views
Bootstrapping first, then data mine?
I posted this on Cross Validated a month ago, but I didn't get any answers. Sorry for the second post!
I'm wondering about the whole process of testing/data-mining for a strategy and THEN testing on ...
0
votes
1answer
267 views
Is making a bid/ask offer a good way to lower the spreads?
I have written an algorithmic trading program which relies heavily on low spreads in the 0.1-0.3 PIP region. I was now wondering if it would be a good idea to place bid/ask offers instead of limit ...
1
vote
0answers
105 views
Backtesting benchmark / control test design
I am designing a backtesting system to test an algorithm.
I'd like to have a benchmark / control test results
to compare to the results of a custom algorithm.
A limited "set" of stocks is selected ...
5
votes
1answer
403 views
Statistical significance of trading systems that use indicators with long lookbacks
Let's say we have a trading system that trades daily, holding for one day, but uses an indicator that looks back over the last 5 years. A simple example could be the percent change in price of an ...
3
votes
2answers
484 views
How to account for bid/ask spread when backtesting?
I'm backtesting an algorithm for trading nasdaq stocks, and would like to take into account the spread. I am using historical data from yahoo, which contains:
open, high, low, close, volume, adj. ...
2
votes
1answer
216 views
What are the advantages of knowing the bid and ask over the best bid and ask?
I am importing historical intraday tick data from Bloomberg and I noticed the Bloomberg API allows users to import best bid, best ask, bid, and ask prices
If I am backtesting a trading strategy, what ...
1
vote
0answers
138 views
VaR backtesting with overlapping time intervals
Of course the issue here is dependence: can it be removed or accounted for (in independence tests too, which of course would be troublesome)? There's a lot of literature on regression in this setting, ...
5
votes
6answers
524 views
Encyclopedia of Statistical Tests
I am aware of: Encyclopedia of Chart Patterns,
Encyclopedia of Technical Analysis.
Question
I'm wondering if there's something similar, but in the form of:
"Encyclopedia of Statistical Backtesting ...
2
votes
1answer
90 views
Aftcast Generation
Aftcast is a way of simulating equity curves for different start years, usually from a large sample data ~100 years. Its kind of like start date sensitivity testing but in my case, I incorporated ...
0
votes
1answer
143 views
How far back is normal to backtest an ATS ? [duplicate]
Possible Duplicate:
How much data is needed to validate a short-horizon trading strategy?
How far back do people usually backtest trading systems? months? years?
0
votes
0answers
35 views
Inferring Returns From Minimal Data Points [duplicate]
Possible Duplicate:
How much data is needed to validate a short-horizon trading strategy?
Suppose I have daily returns for a trading strategy against one month of data. Before starting ...
3
votes
1answer
207 views
How do I backfill the price of bonds for backtesting?
I need to backfill the price of bonds for testing a startegy.
The method employed is:
Regressing the YTM of the bond against a benchmark.
Using the regression estimates to calculate the YTM for the ...
5
votes
4answers
839 views
How should I include the bid-ask spread as a transaction cost in a backtest?
I have two backtesting algorithms:
One that uses bid and ask prices for signal generation. For example: Buy when $ask < threshold_1 $ and sell when $bid > threshold_2$. Bid and ask prices are ...
3
votes
1answer
629 views
What latency should I use for backtesting a high-frequency strategy?
We're developing an HFT strategy for highly liquid futures traded at Eurex. We are planning to colocate our server and to use data feed of QuantHouse and execution API of ObjectTrading. Backtesting is ...
12
votes
3answers
605 views
How to account for transaction costs in a simulated market environment?
I am simulating a market for my trading system. I have no ask-bid prices in my dataset and use adjusted close for both buy and sell price. To account for this I plan to use a relative transaction ...
3
votes
1answer
265 views
Cross Bid and Ask prices for Forex trading
I am using ITCH protocol to get the Market Data information for Forex and trying to implement LOB on it and what i have noticed is that Bid and Ask prices are crossing very often.
Should that be ...
2
votes
2answers
458 views
Resequencing of MsgSeqNum in FIX 4.2
I am trying to achieve the following functionality using QuickFIX for FIX 4.2
Send a couple of orders and make sure they’re filled.
Then disconnect.
Change the incoming (from Broker) sequence number ...
7
votes
2answers
646 views
How to calculate the most realistic historical option prices with additional publicly available parameters
This is a follow up question of this one.
My aim is to create the most realistic historical option prices possible with publicly available data. I want to do this for backtesting purposes.
The ...
2
votes
0answers
93 views
Are there canonical test cases for testing of pricing engines
Short intro: We are developing pricing engines for the calculation of market risk in a Solvency II solution, including bonds, callable bonds, cds, options, futures and so on. Are there any canonical ...
2
votes
2answers
340 views
One bar look-ahead backtesting
Suppose you backtest the EUR/USD (or GBP/USD) forex pair with this system on the 1min timeframe:
1) Enter the market at any time n: go long if the "future" bar n+1 has a higher close as the close ...
8
votes
1answer
330 views
Any research paper on stop loss?
Has there been any rigorous study on stop loss ? When to apply it?
Has it been shown to work through proper statistical backtests?
I am interested in Equities, preferably European stocks.
11
votes
2answers
417 views
What benchmark/index to use for backtesting a portfolio of stock options?
What benchmark should I use for backtesting a model for when I should buy an option of a particular stock? For equities, one could say their portfolio outperformed the S&P 500. I would like to ...
3
votes
2answers
196 views
Which indices to use for an equity vs. fixed-income portfolio simulation?
I want to backtest several basic optimization methods (e.g. MVO, "most-diversified portfolio"), and I want to do this on a basket of different asset indexes. To start with, I want to simulate a 60/40 ...
8
votes
3answers
286 views
How to account for market movement when some exchanges are closed?
Daily data, such as open and close prices, is often available for much longer periods than high-frequency data. However, whenever backtesting any strategy that examines instruments traded in different ...
8
votes
1answer
431 views
What tools and libraries may be used to model limit/stop systematic trading?
A lot of the tools/libraries out there seem to focus on close to close time series analysis. This is all fine but I typically do not trade close to close, I will use limit or stop orders that may or ...
6
votes
4answers
683 views
How to properly evaluate backtest returns?
Do you evaluate a strategy in a backtest based on the cumulative returns generated by the strategy (i.e. looking at the cumulative returns of the trades that occur) or do you start with a certain ...
8
votes
2answers
999 views
How to vet an intraday strategy
I am working on an intraday strategy using 5/10 minute bars. I am getting a decent return and sharpe on the strategy. But on close examination I see that I am making about 1 cent per trade (I haven't ...
4
votes
3answers
901 views
How to compute the alpha decay of a strategy?
How can one compute the alpha decay of a systematic trading strategy?
12
votes
4answers
1k views
Evaluating automated trading strategies: accepted practice
Both for private projects, and for clients, I've been working on code a lot this year to evaluate automated trading strategies. This often ends up turning into the task of how to fairly compare apples ...
10
votes
2answers
733 views
How to build a regime-switching model which knows its own limits?
In recent months I've come to the conclusion that there are not only certain regimes in the markets (like bear or bull) but phases where all models fail because we are in uncharted territory. The ...
9
votes
1answer
380 views
What to ask for in a good prototyping framework?
Reading up on quantitative methods, model development, and back-testing, one obvious question springs to mind:
What should one ask of a prototyping (model testing) framework?
I know a lot of people ...
6
votes
1answer
361 views
Are shorter holding period strategies better?
Consider two statistically identical strategies (identical information ratios, sample size, ratio of transaction costs to total profit, etc.) except that one has a much shorter average holding period. ...
17
votes
2answers
1k views
How much data is needed to validate a short-horizon trading strategy?
Suppose one has an idea for a short-horizon trading strategy, which we will define as having an average holding period of under 1 week and a required latency between signal calculation and execution ...
9
votes
3answers
400 views
Literature on generating synthetic time series for testing
I have some market data (daily time series) for bond prices and CDS indices and I would like to generate synthetic versions of these which are statistically "similar" for testing trading strategies. ...
8
votes
3answers
844 views
How to generate synthetic FX data for backtesting?
I want to generate synthetic forex data for the purpose of backtesting my trading algorithms. I have some rough ideas in mind on how to do this:
Start with a curve representing a trend, then randomly ...
3
votes
1answer
759 views
How do I backtest a convertible bond arbitrage strategy in R/Matlab?
Since no one was able to answer my previous question, I am going to try to backtest a modern convertible bond arbitrage strategy myself (perhaps I'll report the results back here, if you're lucky :)). ...
9
votes
3answers
801 views
What is the ideal ratio of in-sample length to out-of-sample length?
Suppose you are running a portfolio of quantitative strategies and that you develop a new potential strategy to be added to the mix. Assume for simplicity that the new strategy is independent of the ...
