Topic Author
Posts: 1
Joined: December 4th, 2018, 8:38 am

Out of sample selection

December 4th, 2018, 8:51 am

Hi everyone,

First  post so please be gentile.

I have created a simulation for a number of stocks.  I do all of my testing in-sample and rolling forward a little out of sample (to obtain the performance statistics). I move this window through time to create a performance time-series for each stock I look at  I have noticed that when I stick together the out-of-sample results a few stocks are very consistently under performing through the entire back test period. 

My question is: I don't want to introduce any bias into my simulation by selecting stocks from the out-of-sample window instead of the in-sample window, however why would I include these very poorly performing stocks if they have not ever performed out of sample?  My assumption being that this trend will continue.  I could exclude these stocks and  back test on a regular basis to see if the performance changes?

Any views on this would be much appreciated.

Thanks for any help 
User avatar
Posts: 69355
Joined: November 15th, 2001, 1:29 pm

Re: Out of sample selection

December 4th, 2018, 9:02 am

If you think those stocks are going to continue to underperform consistently, then you may have found free money.
Short the underperformers as part of a long-short strategy

If you buy stocks that are performing well with the hope that they will continue to perform well, that's price-momentum

On the opposite side of the argument, there's a strategy, Dogs of the Dow, where one buys the stocks with the worst dividend yield (which are therefore underpriced according to that metric)

PW by JB has been "Serving the Quantitative Finance Community" since 2001. Continued...



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