Back test

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Back Test

To use past data to predict future events. Researchers use back testing to find relationships between apparently unrelated events and determine if one causes the other. One may conduct back testing to inform one's investment decisions or strategy, though the practice is not always accurate because a great number of inputs cause economic events.

Back test.

A back test simulates the investment return that an investment strategy would have produced over a specific period.

For example, someone who wanted to evaluate a strategy of buying after stock splits might test the effect of having purchased 500 additional shares in the large-cap stocks in a hypothetical portfolio each time one of the stocks split during the period from 1957 to the present.

Back testing is sometimes used to support a current investment strategy by demonstrating that it would have enjoyed strong past performance. Critics point out that the testing period that's chosen has a significant impact on the results and that past performance doesn't guarantee future returns.

References in periodicals archive ?
Findings of Fitch's back testing -- Fitch's guidelines on the capital content of hybrids and preferred stock have been influenced by the back-tests Fitch conducted in 2005 on hybrid securities and preferred stock of corporations, various financial institutions and banks.
The back-test of preferred and hybrid securities appears in the report titled 'Hybrid Securities: Evaluating the Credit Impact -- Revisited', April 20, 2005 also available on Fitch's website.
The PCA for Windows can run back-tests on more than ten years of daily data, and the user variables make it easier than ever to put your portfolio on autopilot.