RT Journal Article
SR Electronic
T1 Backtesting
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 13
OP 28
DO 10.3905/jpm.2015.42.1.013
VO 42
IS 1
A1 Campbell R. Harvey
A1 Yan Liu
YR 2015
UL https://pm-research.com/content/42/1/13.abstract
AB When evaluating a trading strategy, it is routine to discount the Sharpe ratio from a historical backtest. The reason is simple according to the authors: there is inevitable data mining by both the researcher and by other researchers in the past. In this article, the authors provide a statistical framework that systematically accounts for these multiple tests. They propose a method to determine the appropriate haircut for any given reported Sharpe ratio. They also provide a profit hurdle that any strategy needs to achieve in order to be deemed “significant.”TOPICS: Statistical methods, portfolio management/multi-asset allocation