Backtest check
Checks whether a backtest result is real or just the best of many lucky parameter tries.
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Inputs
Strategy returns, frequency, number of variants tried, the variants themselves.
Outputs
Sharpe with an interval, probabilistic and deflated Sharpe, minimum track record, probability of overfitting.
How it is reviewed
In 1,000 simulations without an edge the best of 50 variants passed the plain test 92% of the time and the deflated one 0% of the time.
Limits
A strict test: failing it does not prove there is no edge. Costs must already be included.
Versions
- v1.0
First version.