Asset research
Stock Backtesting
Stock backtesting evaluates defined trading rules on historical equity or index data. A credible test uses point-in-time information, handles splits and dividends appropriately, includes delisted securities when relevant, and models trading costs.
Control equity-data bias
Using only today’s index members can create survivorship bias. For multi-stock research, point-in-time universes and correctly adjusted prices are important.
Match execution to the market
Specify whether signals execute at the close, next open, or another observable price. Intraday tests need sufficiently granular data and stronger assumptions about liquidity.
Use a relevant benchmark
Compare a strategy with a passive benchmark over the same dates. Review whether any excess return compensates for turnover, drawdown, and complexity.
Research checklist
- Corporate actions and adjusted prices
- Survivorship and look-ahead bias
- Brokerage and transaction costs
- Index membership through time
Questions and answers
How do I backtest a stock strategy?
Define rules and an investable universe, use point-in-time historical data, model execution and costs, then compare out-of-sample results with a relevant benchmark.