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 ?
Tick Data offers research-ready historical intraday stock, futures, options and forex data to back-test trading strategies, develop risk and execution models, perform post-trade analysis, and conduct important academic research used by investment banks, asset managers, proprietary traders and universities.
Third, we back-test the market risk measures with the original incomplete historical panel of observable prices to verify the reliability of the estimates.
However, a well-performed back-test has to be based on the historical observable market data.
One can back-test the strategies after they are developed and paper-trade the strategies and then, these strategies can be made available to in-house traders as well as active-traders & sophisticated HNI/retail investors.
In addition the software allows users to back-test any stock or mutual fund to see how the system would have performed over any time period.