RB RB
The Official Blog of Retail Backtest
About     Entries

Real Vs. Hypothetical

Before investing with some fund or using some advisory service that one way or another provides active portfolio management, we naturally want to first look at past performance. I'm going to discuss the different kinds of performance histories that can be made available, and argue that the kind that is generally considered to be the gold standard is not necessarily what it seems to be.

....

So Retail Backtest's backtested program performance is labeled "hypothetical", by me, to match expectations in that regard. However, what Retail Backtest does is the same thing that you would be doing if you were to pick funds to invest in based on their past "real-money" performance. Yes, you would simply be competing with me, performing the same function.

Continue reading »

Trading at the Speed of Light

One of the things that we have to keep in mind when putting together algorithmic means for portfolio management, especially if there is to be a substantial amount of trading, are the other ways in which the trading world has been changing due to electronics. It's not just computation that has changed; it's communication too.

I won't pretend to be a qualified historian of the stock and commodities markets, or of electronics, but it's not too difficult for me to cite some milestones for you— going all the way back into the 19th century. This is all just for a nostalgic look back. And I'm sure that readers under 25 years of age or so will find the discussion of the landlines telephone system to be something like a trip to a museum of natural history.
Continue reading »

"Why Most Published Research Findings Are False"

Today's note is to point to an essay of that title by John P. A. Ioannidis, Professor of Medicine and of Health Research and Policy at Stanford University School of Medicine and Professor of Statistics at Stanford University School of Humanities and Sciences. By false findings he is referring to research that passed the usual test of statistical significance but was ultimately proven to be false, non-reproducible. The problem is that the number of false findings is much, much higher than would be predicted from the researchers' own assessments of statistical significance.

....

I want to talk a little about how the circumstances are a bit different for findings by quantitative analysts who work for funds managing securities. Can you guess why? Come on... it's easy.

Continue reading »

"Just Give Me a Seat at the Table and I'll Figure It Out"

Danny Moses has been a securities broker and trader. He was on FrontPoint Partners' team during and after the 2008 subprime mortgage/Lehman Brothers debacle. FrontPoint was a hedge fund that anticipated the subprime crisis and profited very handsomely from it.

....

I am posting this link here because Moses is critical of the current state of the market, especially the stock market, which he describes as being disconnected from fundamentals— from the actual financial circumstances of companies. In particular, he says that the ETFs that own a stock matter more than the financial health of the company.

Continue reading »

Objectivity and the Trailing Performance Period

One of the most easily reached conclusions in all of logical thinking is that we should always do things the way that worked best in prior experience. Oh, that's not to say that we shouldn't or don't occasionally get inventive. But we surely believe that we should never do anything in a way that worked much worst in the past than something else that worked well.

....

The mistake has to do with choices. I usually frame the issue by talking about "parameters". By that I mean numbers, numbers that specify your portfolio management scheme's way of learning from the past. The mistake is to simply find out what choice of parameters would have produced the very best results in the entire available history, to thus fix those parameters, and then to use them going forward.

Continue reading »
© 2017 Michael C. O'Connor ∅ All Rights Reserved