Back testing is one of the most misused tools in investment management. Almost every back test outperforms the market, but those same strategies often struggle when run with actual money. In this episode, we discuss the reasons why back tested results often don’t translate into the real world and talk about some things to look out for when evaluating back tests.
- Why human emotion can be an issue in back tests even though they are quantitative
- Why it is important for any strategy to have an economic reason behind it
- Why periods where a strategy struggles can be a good thing
- The challenges of avoiding data mining