What data to use for LongTerm Backtesting
Posted: Wed Jan 26, 2011 2:55 pm
Hello I was wondering what is the correct/preferred/or best way adjust historic future prices for intermediate term trend following systems. My inclination is to use perpetual futures (as defined by CSI) since it should give the purest signals. For example if you are trading TYs then as they get closer to expiry the will go down in price as their yield decreases which is why you also see about a 10bp jump in TY futures around the roll. My understanding is that perpetual futures should get rid of this. Argument works for OIL and other futures as well.
The case for back-adjusted futures is that you have the live prices however if you roll futures that have backwardation or contango this should add a sort of trend to your prices over long periods because you are adding or subtracting a consistent amount.
I would appreciate if anyone could guide me on this. I have also attached a paper i found on the topic which might better explain my dilemma.
thanks,
Cy
The case for back-adjusted futures is that you have the live prices however if you roll futures that have backwardation or contango this should add a sort of trend to your prices over long periods because you are adding or subtracting a consistent amount.
I would appreciate if anyone could guide me on this. I have also attached a paper i found on the topic which might better explain my dilemma.
thanks,
Cy