O'Reilly logo

Quantitative Equity Portfolio Management by Daehwan Kim, Ludwig B Chincarini

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

CHAPTER 16The Backtesting Process

Tell me and I forget, teach me and I remember, involve me and I learn.

—Benjamin Franklin

16.1 INTRODUCTION

In this chapter we use historical data to formulate models of stock returns and test the performance of hypothetical portfolios based on the models. Building and testing models with past data in this way is referred to as backtesting. Backtesting is used widely in quantitative equity portfolio management (QEPM) as a first step in evaluating how well a new investment idea might work. The results of a backtest show whether a strategy would have worked over a significant period in the recent past, which might give an indication of how it will work in the near and not-so-near future.

A series of decisions must ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required