How to go about simulations of variables like price-to-book or dividend yield? Basically I would like to do a simulation based testing of an investing strategy (other than historical simulation). It’s doesn’t make sense just simulating price and taking the other variables from history because they’re obviously very dependent, also the correlation estimate of price and financial statement variables would be pretty unstable since it’s quarterly data, so something like Beta scaling of the variables seems like a bad idea.

Any ideas or literature references for this?

  • $\begingroup$ What exactly is wrong with historical simulation? The idea of bootstrapping or otherwise simulating P/B ratios sounds bizarre $\endgroup$ – Chris Sep 7 '20 at 5:52
  • $\begingroup$ Simulated data gives a little more confidence over the dangers of data mining, many trading strategies are optimized and/or backtested using layers of simulated data, wondering if that can be applied to investment strategies too. $\endgroup$ – Dhruv Mahajan Sep 7 '20 at 8:12

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