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Reading 38 Backtesting and Simulation

The document consists of a series of 16 multiple-choice questions related to investment strategies, backtesting, and risk assessment. Key topics include characteristics of return distributions, steps in backtesting, and potential biases in investment analysis. Each question assesses knowledge of financial concepts and methodologies relevant to portfolio management and quantitative analysis.

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Jerry Djondo
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34 views5 pages

Reading 38 Backtesting and Simulation

The document consists of a series of 16 multiple-choice questions related to investment strategies, backtesting, and risk assessment. Key topics include characteristics of return distributions, steps in backtesting, and potential biases in investment analysis. Each question assesses knowledge of financial concepts and methodologies relevant to portfolio management and quantitative analysis.

Uploaded by

Jerry Djondo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Question #1 of 16 Question ID: 1473998

A risk-averse investor is most likely to desire which of the following attributes of a


multivariate return distribution?

A) Excess kurtosis.
B) Negative skewness.
C) Positive skewness.

Question #2 of 16 Question ID: 1473989

Which of the following most accurately describes the steps in backtesting an investment
strategy?

Obtain estimates of the regression parameters, determine the assumed values of


A) the independent variables, and compute the predicted value of the dependent
variable.
B) Strategy design, historical investment simulation, and analysis of output.
Conceptualization of the modeling task, data collection, data preparation and
C)
wrangling, data exploration, and model training.

Question #3 of 16 Question ID: 1474000

In conducting a sensitivity analysis, an analyst is most likely to take fat tails and negative
skewness into account by repeating a Monte Carlo simulation using a multivariate:

A) Bernoulli distribution.
B) skewed Student’s t-distribution.
C) normal distribution.

Q ti #4 f 16
Question #4 of 16 Question ID: 1473993

Which of the following is the least likely to result from using information that would have
been unavailable at the time of the investment decision?

A) Data snooping.
B) Look-ahead bias.
C) Survivorship bias.

Question #5 of 16 Question ID: 1473994

Bill Cassidy, CFA, is the portfolio manager for Applied Logistics pension fund. Cassidy is
meeting with Alex Swary, the senior quantitative analyst, to discuss the results of backtesting
of a model developed by Swary. The model uses several factors in selecting stocks, including
EPS growth over the past year, the industry competitiveness index, and price-to-book ratio.
The model makes picks on the first trading day of each calendar year with annual
rebalancing.

While evaluating the results of backtesting, Cassidy should be most likely concerned with:

A) survivorship bias.
B) data snooping bias.
C) look-ahead bias.

Question #6 of 16 Question ID: 1473987

Which of the following statements about backtesting an investment strategy is least


accurate? Backtesting:

A) is incompatible with quantitative and systematic investment styles.


B) is based on the implied assumption that the future will somewhat resemble history.
C) can take the randomness of the future into account.

Question #7 of 16 Question ID: 1473995


Which of the following most accurately describes a scenario analysis?

A) Backtesting a model during periods of high volatility and periods of low volatility.
Backtesting a model using U.S. market data as well as using the European market
B)
data.
C) Backtesting a model for large-cap securities as well as for medium-cap securities.

Question #8 of 16 Question ID: 1473986

Which of the following statements about backtesting an investment strategy is least


accurate? Backtesting is:

A) a new methodology that is slowly gaining acceptance in the investment community.


B) widely used by managers that use a fundamental investment style.
C) useful as a rejection or acceptance criterion for an investment strategy.

Question #9 of 16 Question ID: 1473988

Which of the following most accurately describes a step in backtesting an investment


strategy?

A) In the “strategy design” step, we form investment portfolios for each period.
In the “historical investment simulation” step, we calculate portfolio performance
B)
statistics.
In the “historical investment simulation” step, we rebalance the portfolio
C)
periodically.

Question #10 of 16 Question ID: 1473991

Which of the following metrics are most likely to be reported in a backtest of an investment
strategy?

A) Altman Z-score, Sloan ratio, and Beneish M-score.


B) Maximum drawdown, Sharpe ratio, and Sortino ratio.
C) Enterprise value, volume, and market capitalization.

Question #11 of 16 Question ID: 1473992

Which of the following identifies problems that are most likely to arise in a backtest of an
investment strategy?

A) Survivorship bias, look-ahead bias, and data snooping.


B) Including lagged dependent variables as independent variables.
C) Heteroskedasticity, serial correlation, and multicollinearity.

Question #12 of 16 Question ID: 1473985

Which of the following statements about backtesting an investment strategy is least


accurate? Backtesting:

A) approximates the real-life investment process.


B) ensures that a strategy will perform well in the future.
C) lends rigor to the investment process.

Question #13 of 16 Question ID: 1473999

In the historical simulation approach, bootstrapping is most likely to be used when:

A) zero-coupon rates are available but par yields are unknown.


B) the number of trials is larger than the dataset.
C) a merger transaction impacts earnings.

Question #14 of 16 Question ID: 1473997


In the presence of return distribution asymmetry and excess kurtosis, the most appropriate
approach would be to make use of a Monte Carlo simulation using a:

A) normal distribution.
B) skewed Student’s t-distribution.
C) F-distribution.

Question #15 of 16 Question ID: 1473990

A rolling-window backtesting is most accurately described when:

A) a data set is divided into two distinct samples.


B) the out-of-sample data becomes the in-sample data for the subsequent period.
C) repeated sampling from the same data set leads to the use of redundant sources.

Question #16 of 16 Question ID: 1473996

Which of the following is least likely an example of historical stress testing?

Backtesting the performance of the strategy during the high market return period of
A)
2017–2018.
Backtesting the performance of the strategy, assuming that the CBOE VIX Index is
B)
greater than 55.
Backtesting the performance of the strategy during the great recession, a period
C)
following the global financial crisis of 2008.

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