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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
(2017), 'Backtesting European Stress Tests', Working Paper Series, No 23083, National Bureau of Economic Research, January; Niepmann, F.
SmartBotCoin offers portfolio management, asset allocation, advanced backtesting, customized algorithms to suit individual trading styles and goals, social trading, as well as news and opinions from expert traders.
Backtesting iFlip's platform over the past 20 years revealed that users would have saved a hypothetical $70,000 in asset management fees in that time period, significantly improving its value proposition for prospective investors, according to the company.
Backtesting shows it would have picked up on the importance of the famous three words, 'whatever it takes,' ECB President Mario Draghi uttered in July 2012 that ultimately saved the euro from collapse.
In cTrader Automate app, there are also new additions including the Backtesting and Optimization progress bar, input parameters grouping for cBots and indicators, possibility to save cBots in chart templates, and new methods in cTrader Automate API.
Moreover, Appendix D provides an overview over the model accuracy by showing backtesting results for the reference year 2012.
* VaR Backtesting: Value-at-RIsk estimation depends on the following features: data set, confidence level ([alpha]), estimation window (WE) and distribution parameters (if any).
In addition, the market risk measurement model used in a bank should be subject to the process of backtesting, which compares the VaR forecasts with the actual rate of return from an asset.
Khalaf-Allah, 2010, Backtesting Stochastic Mortality Models: An Ex-Post Evaluation of Multi-Period-Ahead Density Forecasts, North American Actuarial Journal, 14: 281-298.