Evaluating Trading Strategies

Harvey, Campbell R.; Liu, Yan

doi:10.2139/ssrn.2474755

Evaluating Trading Strategies

16 Pages Posted: 3 Aug 2014 Last revised: 26 Aug 2014

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Yan Liu

Texas A&M University, Department of Finance

Date Written: August 25, 2014

Abstract

We provide some new tools to evaluate trading strategies. When it is known that many strategies and combinations of strategies have been tried, we need to adjust our evaluation method for these multiple tests. Sharpe Ratios and other statistics will be overstated. Our methods are simple to implement and allow for the real-time evaluation of candidate trading strategies.

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Keywords: Sharpe ratio, Multiple tests, Holm, BHY, Bonferroni, Strategy selection, Backtest, Haircut, Haircut Sharpe Ratio, Data Mining, Machine Learning, Higgs Boson, Trading Strategies, Out-of-Sample tests, In-Sample tests, FDR, FWER, Capital IQ, PBO

JEL Classification: G12, G14, G30, G00, C12, C20, B41

Suggested Citation: Suggested Citation

Harvey, Campbell R. and Liu, Yan, Evaluating Trading Strategies (August 25, 2014). Available at SSRN: https://ssrn.com/abstract=2474755 or http://dx.doi.org/10.2139/ssrn.2474755