Backtesting: What Is It Good For? [Part Two]

In part one, I looked at backtests and how, if not conducted properly, the data produced from these tests can be highly misleading.

However, as I noted in part one backtests should not be written off entirely. They have their uses, if used properly. This was a topic Jim O’Shaughnessy, Chairman and CEO of O’Shaughnessy Asset Management and author of What Works on Wall Street covered last year on his Yahoo! Finance blog.

Five issues with backtesting

The five main issues with backtesting, as covered in part one are 1) data-mining; 2) a limited time period;...