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Article

Backtesting

Campbell R. Harvey and Yan Liu
The Journal of Portfolio Management Fall 2015, 42 (1) 13-28; DOI: https://doi.org/10.3905/jpm.2015.42.1.013
Campbell R. Harvey
is a professor at Duke University in Durham, NC, and a research associate at the National Bureau of Economic Research in Cambridge, MA.
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  • For correspondence: cam.harvey@duke.edu
Yan Liu
is an assistant professor at Texas A&M University in College Station, TX.
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  • For correspondence: y-liu@mays.tamu.edu
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Abstract

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.”

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The Journal of Portfolio Management: 42 (1)
The Journal of Portfolio Management
Vol. 42, Issue 1
Fall 2015
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Backtesting
Campbell R. Harvey, Yan Liu
The Journal of Portfolio Management Oct 2015, 42 (1) 13-28; DOI: 10.3905/jpm.2015.42.1.013

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Backtesting
Campbell R. Harvey, Yan Liu
The Journal of Portfolio Management Oct 2015, 42 (1) 13-28; DOI: 10.3905/jpm.2015.42.1.013
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