The process of evaluating a strategy, theory, or model by applying it to historical data.

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2
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1answer
32 views

Overlapping Value-at-Risk Backtest Data an Issue?

My understanding of VaR model back testing is thus: ~~ t: Calculate daily VaR using look back data over n past days t+1: Compare daily return against VaR, record breach if one occurred, repeat ...
0
votes
0answers
22 views

Calculation of Returns and Risk Metrics for L/S Portfolio

I am trying to build a test for a long/short portfolio. I am aiming for market neutral and have put together a long portfolio as well as a short portfolio (see below). However, I am not sure if I am ...
0
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2answers
46 views

Long/Short Backtesting Set up

I am going to be backtesting a Long/Short equity strategy and need some guidance on how best to deal with the short book. I was thinking that for each portfolio I would go long 50 equities and go ...
2
votes
1answer
38 views

How to compute daily compounded backtest returns closer to real-world results?

I often run quick tests of trading strategies in my analytics suites by: multiplying a vector of signal (lagged, {-1,0,1}) with a time series of daily percentage returns doing a cumulative product ...
0
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0answers
72 views

How to calculate returns of backtested strategy?

Lets say I have some strategy (long/short) backtested for certain period. Strategy has entries/exits only at the end of the day and may have overnight positions hold. Now I would like to compare ...
1
vote
1answer
101 views

Analog - Pattern Recognition model using KNN

I'm building a pattern recognition model for my master thesis. The idea is to build a framework with some Macro variables (long/short term rates; rates differential; equity; fx; vix) in order to find ...
0
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1answer
79 views

What data should be used for regression-based model backtesting?

I ran regressions using historical valuation data and now want to backtest the models I came up with. Are there any issues with using the same historical data set for the backtest that I need to be ...
2
votes
2answers
136 views

How to select optimal betting strategy from backtest?

I have written a model for predicting the winner of UFC fights. My model calculates the probability of each fighter to win a given match. I have back tested the model and found it to be very ...
4
votes
2answers
99 views

Back-testing Value at Risk with a WML investment strategy

I'm currently taking a course in Financial Econometrics and there is a question in the lecture notes regarding back-testing of VaR which I'm have difficulty with. First of all the procedure for ...
0
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0answers
124 views

How to fully replicate ADX + DI Indicators in Excel?

For black box testing, I was hoping that I could replicate the ADX + DI+ and DI- indicators that are provided in trading platforms such as ThinkOrSwim, ScottradeElite etc. However, I noticed that ...
3
votes
0answers
106 views

What is the most convenient data structure for backtesting a model of futures options prices?

I have an empirical model for the dynamics of futures prices in a particular market that I have implemented using a long series of the front five contracts. (I account for the roll in my model.) I ...
1
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2answers
207 views

Backtesting with Simulated Historical Data?

The trading strategies that are going to backtest well are the ones that pick the winners from the past. For example, if a trading strategy simply bought apple stock it would backtest extremely well. ...
3
votes
1answer
210 views

How to find optimal look back in quant trading models

I'm in the process of building a quantitative trading model, I want to improve on the way in which I decide upon a look back length for the indicators. I understand the different pros/cons for very ...
1
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3answers
214 views

Handling Missing values in stocks returns when estimating the co variance matrix

What is the best way to handle missing values when stocks did not exist for the entire historical period?.
1
vote
1answer
103 views

Plot Evolution of portfolio weights over time in R [closed]

Is there any function for plotting the evolution of portfolio weights over time in r?. I have a matrix of portfolio weights from an equal weighting strategy at rebalancing times and want to plot ...
0
votes
0answers
320 views

Backtesting with fundamentals

Recently I've read some books about quantative approach to fundamental investing: - What works on Wall Street - James O'Shaughnessy - Quantitative Value - Wesley Gray, Tobias Carlisle - Quantitative ...
2
votes
2answers
175 views

Backtesting Period

Views on timeframes for backtesting vary considerably. Curious on what timeframe/trade size leads to a statistically significant result. For example, what backtest period is reasonable for a system ...
0
votes
2answers
131 views

Sharpe Ratio and time spent in loss

Is it possible to express, given an annualized Sharpe Ratio value, what is an expected maximum/average time spent in a draw-down or something in this manner? E.g. with SR of 10, you'd expect to spend ...
0
votes
1answer
119 views

How to backtest the VaR model?

I have a sorted historical P&L vector of 250 days and say, I want to calculate the 90% VaR on this distribution. I will look for the 225 element (90% * 250 = 225) and this will be my Value at ...
1
vote
2answers
350 views

Machine Learning on matlab 2010

I am trying to develop a trading model. It uses certain technical and fundamental features and the model learns from the past. I have a 3-class output - bullish, neutral and bearish. On trying neural ...
4
votes
1answer
565 views

Expected Shortfall (CVaR) Backtesting

I am writing my thesis on VaR and ES risk measurements and have encountered some issues with how to best test the accuracy of ES estimates. My understanding of the topic is that backtesting ES ...
1
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0answers
217 views

Comparing Backtests of Value-at-Risk and Expected Shortfall

My goal is to test if ES (CVaR) empirically is a better risk measure than VaR for a set of given variables (assumed underlying distribution, confidence level, sample size) for different asset classes. ...
0
votes
1answer
346 views

backtesting with open, close, high and low

I am quite notice at the business of backtesting for an automated strategy. I was wondering, can I/should I use High and Low for this purpose? On one hand, the algorithm will see these prices, but on ...
0
votes
1answer
193 views

adjusted close prices on SP500

When I look at the adjusted close prices of SP500, for example, I notice that the numbers are always significantly below the actual closing. In the explanation of what adjusted prices are, one gets ...
0
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1answer
84 views

How do I take an unbiased, sector neutral sample from a stock index?

I am looking to take a cross sector subset of a larger stock index universe. What steps to I take to assure that sector representation is as equal as possible to help smooth out my variance(while ...
3
votes
0answers
425 views

Testing Valuation, Size and Momentum (proprietary factors) from 1988-2013: No evidence of driving cross-sectional returns

I am currently testing whether three proprietary factors - Valuation, Size and Momentum - explain cross-sectional returns. A sample of 3000 securities was tested using Fama-MacBeth two-pass ...
3
votes
1answer
199 views

How to design back-testing (validation) for such modified Vasicek model?

Consider a classical Black Scholes model , $$\frac{dS}{S} = \mu dt + \sigma dW$$ , where $dW$ is a Brownian motion, that $W(t_1) - W(t_0) \sim N(0, t_1 - t_0)$. The back-testing strategy is ...
4
votes
3answers
443 views

Backtesting - can you buy/sell at open and closing prices?

In backtesting (nasdaq stocks), I make the assumption that I have the ability buy/sell each day at the opening and closing prices. Is this realistic?
1
vote
2answers
113 views

how to make a distribution model tolerable of trend?

I'm building an model on different loans' NPL rate. The problem is NPL rates are always affected by the market. When NPL rates move in trend, my model will fail the back-testing. Assuming $x(t)$ is a ...
3
votes
3answers
265 views

How to most optimally perform currency conversions when backtesting on portfolio level?

I am currently expanding my own strategy profiling and testing platform which partly consists of a portfolio backtesting module. The backtest engine processes tick based data (quotes for currencies, ...
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votes
2answers
397 views

How to get/estimate ask/bid price for backtesting for OHLC data? [closed]

As you know, most of the EOD data available have only OHLC price. I used to do back-testing using the Close price as both bid and ask. however, in real world, the bid and ask spread is huge and the ...
3
votes
4answers
1k views

IB TWS & API, without IB account?

I'll be starting a MFE grad program in Fall, and some of the classes have a lab that use the IB TWS & API. I'd like to play around with it for fun this summer. Unfortunately, I don't have an IB ...
2
votes
2answers
944 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
340 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
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0answers
237 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 ...
3
votes
1answer
340 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 ...
3
votes
2answers
431 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, ...
3
votes
1answer
3k 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
483 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
183 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
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0answers
1k 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
1k 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
272 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
246 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
239 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
435 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 ...
1
vote
1answer
366 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 ...
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0answers
167 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
681 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
1k 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. ...