Quant Overview & Backtesting

Question 1

What is backtesting?

Answer 1

• Identify factors that describe a subject (e.g.startegy) and test to see how well they would have performed ex-post.

Question 2

What are two biases to account for when backtesting?

Answer 2

1. Survivorship bias.
2. Look-ahead bias.

Question 3

What is survivorship bias?

Answer 3

• –Survivorship bias occurs when historical results are biased because only companies that have survived up to the present time are included.

Question 4

What is look-ahead bias?

Answer 4

• –Look-ahead bias occurs when the model uses information that would not have been available on the test day.

Question 5

How can we account for survivorship bias?

Answer 5

• Include inactive securities.

Question 6

How can we account for look-ahead bias?

Answer 6

• Lag fundamentals data, when necessary.

Question 7

Which FactSet library takes into account of statistical biases?

Answer 7

• The Quant Factor Library (QFL).