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

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4
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3answers
499 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?
0
votes
1answer
87 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 ...
4
votes
0answers
494 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
219 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 ...
-2
votes
2answers
466 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
3answers
301 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, ...
2
votes
2answers
1k 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
370 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. :)
4
votes
0answers
254 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
4k 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
542 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: ...
4
votes
2answers
255 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 ...
5
votes
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 ...
2
votes
1answer
195 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
6answers
628 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 ...
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 ...
2
votes
2answers
1k 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 ...
2
votes
1answer
240 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
462 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
389 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 ...
17
votes
3answers
3k views

Main backtesting & trading solutions: QuantFactory, Deltix, etc.

What are the most used/mature/promising commercial solutions today which handle backtesting/ automated trading needs? I'm talking about vertical product suites like QuantFactory or Deltix which ...
12
votes
3answers
868 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 ...
1
vote
0answers
173 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
772 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 ...
8
votes
3answers
2k views

What is an effective way of backtesting VWAP execution?

From Optimal Trading Strategies : There are two main reasons why traders execute orders using a VWAP trading strategy. First, a VWAP strategy is the trading strategy that minimizes market ...
3
votes
2answers
2k 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
471 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
303 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
4answers
2k 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 ...
2
votes
1answer
105 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
168 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?
8
votes
1answer
609 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 ...
0
votes
0answers
40 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
333 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 ...
3
votes
1answer
939 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 ...
3
votes
1answer
366 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 ...
1
vote
2answers
484 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 ...
3
votes
0answers
119 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 ...
10
votes
3answers
780 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. ...
5
votes
5answers
2k views

What are the advantages of switching platforms/languages between strategy development and implementation?

I am interested in coding a medium frequency (trading over minutes to hours, holding for days to weeks) quantitative trading strategy and trading it with Interactive Brokers. I have seen many people ...
8
votes
1answer
445 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.
8
votes
2answers
1k 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 ...
3
votes
2answers
269 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 ...
6
votes
4answers
1k 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 ...
4
votes
3answers
2k views

How to compute the alpha decay of a strategy?

How can one compute the alpha decay of a systematic trading strategy?
16
votes
4answers
3k 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 ...
11
votes
2answers
1k 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
3answers
2k 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 ...
9
votes
1answer
495 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
491 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. ...