Historical transaction costs
Posted: Fri Feb 27, 2009 3:46 pm
Just wondering how (or even if) people deal with changing transaction cost in backtesting.
A phenomenon that i've seen in backtesting (particularly when trading at higher frequencies) is that applying todays transaction costs to 10+ years of data leads to a 'flattening out' of the end of the equity curve in many cases (i.e. the closer you get to today, the flatter it gets). I assume that part (all?) of this has to do with the strategy taking advantage of today's costs in a historical environment where they probably weren't realizable.
Any idea what reasonable cost assumptions (commission etc.) would have been in the 70's, 80's ad 90's for futures?
What i've been doing is just setting commission costs arbitrarily high for the whole simulation ($100 / contract) and assuming that if i can survive at that level for a prolonged period, i should be okay.
I've also looked at my 'cost to break even' to see what cost levels would kill me in the long run... seems like a reasonably way to define an upper limit, but i cant really translate it into a more accurate estimation of what real costs would have been.
any thoughts on this?
A phenomenon that i've seen in backtesting (particularly when trading at higher frequencies) is that applying todays transaction costs to 10+ years of data leads to a 'flattening out' of the end of the equity curve in many cases (i.e. the closer you get to today, the flatter it gets). I assume that part (all?) of this has to do with the strategy taking advantage of today's costs in a historical environment where they probably weren't realizable.
Any idea what reasonable cost assumptions (commission etc.) would have been in the 70's, 80's ad 90's for futures?
What i've been doing is just setting commission costs arbitrarily high for the whole simulation ($100 / contract) and assuming that if i can survive at that level for a prolonged period, i should be okay.
I've also looked at my 'cost to break even' to see what cost levels would kill me in the long run... seems like a reasonably way to define an upper limit, but i cant really translate it into a more accurate estimation of what real costs would have been.
any thoughts on this?