Anyone who builds, buys or allocates to a systematic strategy should be able to ask the questions below. Each one comes from a paper that is free to read on SSRN.
Asking a question is the easy part. Answering it for a real strategy takes its data, its code and its trade records, and the judgement to know which answer matters most. That is the work we do in due diligence and strategy validation.
- Is the position size justified by the edge, or would a smaller edge than the backtest shows ruin the account?The Kelly Capital Growth Investment Criterion: Theory and Practice SSRN
- When several strategies are held together, how is each one sized?Kelly Criterion for Multivariate Portfolios: A Model-Free Approach SSRN
- What happens to the result when the parameters are not known exactly?Approximating Optimal Trading Strategies Under Parameter Uncertainty: A Monte Carlo Approach SSRN
- What drawdown should be expected, and how was that figure estimated?Drawdown-at-Risk Monte Carlo Optimization SSRN
- Is the whole chain accounted for, from signal to portfolio to execution?A Practical Guide to Quantitative Portfolio Trading SSRN
- How many variations were tried, and has the Sharpe ratio been corrected for them?Accounting for Sharpe Ratio Related Data-Mining Bias in Backtests of Systematic Trading Algorithms SSRN
- How much of the backtest is likely to survive out of sample?All that Glitters Is Not Gold: Comparing Backtest and Out-of-Sample Performance on a Large Cohort of Trading Algorithms SSRN
- Has the edge held up since it became widely known?Pairs Trading: Performance of a Relative Value Arbitrage Rule SSRN
- How are forecasts and views combined into one portfolio?Portfolio Construction and Systematic Trading with Factor Entropy Pooling SSRN
- Has the result been held to a higher bar because many strategies were tested?Evaluating Trading Strategies SSRN
- How does the result look across every parameter value tried, not only the best one?Know Your System! Turning Data Mining from Bias to Benefit Through System Parameter Permutation SSRN
- Does the rule still work on data that came after it was designed?Predictability of the Simple Technical Trading Rules: An Out-of-Sample Test SSRN
- What can the numbers in a strategy presentation actually prove?Limitations of Quantitative Claims About Trading Strategy Evaluation SSRN
- How many of the published factors behind a strategy are likely to be false discoveries?... and the Cross-Section of Expected Returns SSRN
- If a machine searched for the rules, how was its search controlled?Automated Trading with Genetic-Algorithm Neural-Network Risk Cybernetics: An Application on FX Markets SSRN
To have these questions answered for a strategy you run or are considering, write to our contact address.