Chapter 16: Strategy Simulation
Deflated Sharpe Ratio and Search-Aware Backtest Inference advanced
Why the best backtest from a large search must clear a higher statistical bar than a pre-specified strategy.
Why the best backtest from a large search must clear a higher statistical bar than a pre-specified strategy.
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References
The Sharpe Ratio Efficient Frontier
David H. Bailey, Marcos Lopez de Prado
(2012)
The Deflated Sharpe Ratio: Correcting for Selection Bias, Backtest Overfitting and Non-Normality
David H. Bailey, Marcos Lopez de Prado
(2014)
...and the Cross-Section of Expected Returns
Campbell R. Harvey, Yan Liu, Heqing Zhu
(2016)
— Review of Financial Studies
The Probability of Backtest Overfitting
David H. Bailey, Jonathan Borwein, Marcos Lopez de Prado, Qiji Jim Zhu
(2015)