Pseudo-Mathematics and Financial Charlatanism: The Effects of Backtest Overfitting on Out-of-Sample Performance

David H. Bailey, Jonathan M. Borwein, Marcos López de Prado, Qiji Jim Zhu · 2014 · Notices of the American Mathematical Society

BeginnerAny horizonMethodFree to read

A readable warning: try enough configurations and a high in-sample Sharpe is nearly guaranteed and means nothing.

Read the paper ↗

At a glance

Level: Beginner: No prior microstructure or stochastic calculus needed
Horizon: Any horizon
Data needed: None to read it; no dataset required Set what data you have
Themes: Backtesting
Assets: Equities
Market: Global

Your notes

Report a problem with this entry

Step 1 of 7 in

Don't fool yourself: backtesting hygiene

The Statistics of Sharpe Ratios →

Cite

@article{bailey2014pseudo,
  author = {Bailey, David H. and Borwein, Jonathan M. and López de Prado, Marcos and Zhu, Qiji Jim},
  title = {{Pseudo-Mathematics and Financial Charlatanism: The Effects of Backtest Overfitting on Out-of-Sample Performance}},
  journal = {Notices of the American Mathematical Society},
  year = {2014},
  doi = {10.1090/noti1105}
}

Bailey, D. H., Borwein, J. M., López de Prado, M., & Zhu, Q. J. (2014). Pseudo-Mathematics and Financial Charlatanism: The Effects of Backtest Overfitting on Out-of-Sample Performance. Notices of the American Mathematical Society. https://doi.org/10.1090/noti1105