Executive Summary:
- Misleading backtests are easily constructed, and researchers are often incentivized to build misleading backtests.
- There are many ways in which a backtest can be made misleading, intentionally or otherwise.
- It is often possible to spot deceptive forces in a backtest. Less frequently, it is possible to prevent these from affecting backtesting results.
The full note on this important topic can be downloaded at this link: LTA Thinking – Failure Modes of Backtesting