Assume a daily trading strategy where each day we rebalance our portfolio weights:
- Situation A: all constituents of our portfolio are from the same market (e.g. a portfolio of S&P 500 stocks)
- Situation B: the portfolio consists of stocks from different markets/regions (e.g. a global portfolio with USA, EU and Asian stocks)
In Situation A, I exclude holidays when performing a backtest, reflecting the fact that orders can not be placed on such days as exchanges are closed. However, in Situation B, this is harder since holidays do not necessarily coincide between different markets (e.g. see holiday calendars of Hong Kong exchange and NYSE).
How does one treat holidays when backtesting strategies on global portfolios in Situation B?