Hello
Will Trading Blox backtest indexes, such as SP 500, Russell 2000, etc?
THANKS
Trading Blox - will it test indexes?
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billpritjr
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AFJ Garner
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Yes.
You may need to make some adjustments for tracking error however and you need to decide whether to test for price only or price plus dividend stream.
The need to adjust for tracking error arises because there are costs involved in following an index. ETFs have expense ratios of around 0.75% and commissions on sales and purchases. Equally, you will have expenses if you wish to construct your own index by buying, holding and adjusting the components.
A price only index will not give a true reflection of the benefit of holding an index - dividends are an important part of the return. However you need to consider the dividend stream and what, in practice, you would do with it. Would you intend to re-invest dividends as they arise or hive them off separtely for income purposes? And there are tax consequences of course.
Many of the index tests you see in acedemic reports, commercial web-sites run by fund managers, blogs and so forth do not factor in some or all of such matters or fail to state the basis on which their tests have been conducted.
You may need to make some adjustments for tracking error however and you need to decide whether to test for price only or price plus dividend stream.
The need to adjust for tracking error arises because there are costs involved in following an index. ETFs have expense ratios of around 0.75% and commissions on sales and purchases. Equally, you will have expenses if you wish to construct your own index by buying, holding and adjusting the components.
A price only index will not give a true reflection of the benefit of holding an index - dividends are an important part of the return. However you need to consider the dividend stream and what, in practice, you would do with it. Would you intend to re-invest dividends as they arise or hive them off separtely for income purposes? And there are tax consequences of course.
Many of the index tests you see in acedemic reports, commercial web-sites run by fund managers, blogs and so forth do not factor in some or all of such matters or fail to state the basis on which their tests have been conducted.
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billpritjr
- Roundtable Fellow
- Posts: 93
- Joined: Mon May 19, 2003 1:17 am
- Location: Ft. Worth, Texas