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Backtesting: Difference between revisions
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So these randy [[salespeople]] needed something their [[client]]s could take back to their risk committee to demonstrate the rigorous financial analysis{{tm}} that had gone into their product design{{tm}}. Then a lightbulb moment: ''[[backtesting]]''. [[There is no data from the future|There may be no data from the future]], but there’s buckets of the stuff from the past. Here your [[Bloomberg]] terminal is your friend. All you need are ninja [[Excel]] skills — every blighter has those — and you can compare how your ingenious strategy would have done against [[benchmark]]s and [[beta|market averages]] had you run it for the last five years. | So these randy [[salespeople]] needed something their [[client]]s could take back to their risk committee to demonstrate the rigorous financial analysis{{tm}} that had gone into their product design{{tm}}. Then a lightbulb moment: ''[[backtesting]]''. [[There is no data from the future|There may be no data from the future]], but there’s buckets of the stuff from the past. Here your [[Bloomberg]] terminal is your friend. All you need are ninja [[Excel]] skills — every blighter has those — and you can compare how your ingenious strategy would have done against [[benchmark]]s and [[beta|market averages]] had you run it for the last five years. | ||
Which you | Which you haven’t been doing, because you only just thought it up, because this strategy never would have occurred to you had you not known how the markets had actually behaved over the last five years. ''There was no data from the future in the past.'' | ||
And how would it perform? Unless ''you'' are a bigger knucklehead than your [[client]], SPECTACULARLY. Whatever the weather. You designed it, with 20:20 hindsight, specifically to look good against this exact data set, remember? However mendacious you might be, the ruse is so obvious that no client who entertained it for a moment deserves any sympathy at all. Yet in their thousands, they did. | And how would it perform? Unless ''you'' are a bigger knucklehead than your [[client]], SPECTACULARLY. Whatever the weather. You designed it, with 20:20 hindsight, specifically to look good against this exact data set, remember? However mendacious you might be, the ruse is so obvious that no client who entertained it for a moment deserves any sympathy at all. Yet in their thousands, they did. | ||