Performance Analysis of Investment Strategies – Pitfalls and Surprises
Lecture Notes in Management Science, Vol. 5, p. 176-180, 2013
Posted: 8 Feb 2017
Date Written: August 28, 2013
Abstract
Active investment strategies are a subject of endless debates. Myriads of studies have been conducted to proof performance potential or to reject previous studies due to flaws or misinterpretations. The presentation will address three specific aspects which often are disregarded when performance is measured. Firstly, we will discuss the role of backtests and show that this instrument — even when used carefully and skilled — may lead to biased and misleading results. Secondly, we give an example that the concepts of performance and forecast power must be strictly distinguished. Finally, we demonstrate that implementation details, while largely neglected, may strongly impact and bias a strategy’s performance.
Keywords: Backtest; Forecast Power; Implementation; Market Efficiency; Performance Analysis; Simple Moving Average; Simulations; Technical Timing Strategies
JEL Classification: G11
Suggested Citation: Suggested Citation