[R-SIG-Finance] Evaluating equity curves

[Brian G. Peterson]

R. Vince wrote:
> Brian,
> 
> Isn't any stream of cumulative returns, de facto, an equity curve? Or am 
> I misunderstanding this? Thanks, Ralph Vince

You're absolutely correct.  This is why I described it as an artificial 
distinction.  Many traders seem to believe that there is something magical 
about an "equity curve" when it is really just a way of describing cumulative 
returns. Thus my point that there is indeed nothing magical, and all the usual 
suspects on return, risk, and attribution analysis may be readily applied to 
analysis of trading strategies.

Regards,

     - Brian

> ----- Original Message ----- 
 > From: "Brian G. Peterson" <brian at braverock.com>
>> Aleks Clark wrote:>>> As part of a project I'm working on that uses genetic algorithms to
>>> optimize trading parameters, I find myself seeking a way to evaluate
>>> the equity curve that results from a given set of trading rules. It
>>> seems to be an obvious area of research, so I was wondering what's
>>> available in R-land or just in the world of finance in general. I've
>>> poked around with splines as a way to express how 'nice' an equity
>>> curve is (steady upward rise as opposed to a "jagged" line), but I
>>> feel that there are probably better ways to do things...
>>
>> Having worked both in quantitative trading and in more traditional 
>> asset management roles, I've never quite understood the artificial 
>> distinction between "equity curves" and any other kind of returns.  In 
>> my experience, all the usual performance and risk analysis tools 
>> (amply provided for in R) as well as attribution (e.g. Bacon, much of 
>> which is implemented in fPortfolio) are equally applicable to trading 
>> strategies as they are to more traditional investment.  Also see Pat 
>> Burns' paper on evaluatinfg trading strategies for additional ideas.
>>
>> Regards,
>>
>>   - Brian
>>
>> _______________________________________________
>> R-SIG-Finance at stat.math.ethz.ch mailing list
>> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
>> -- Subscriber-posting only.
>> -- If you want to post, subscribe first. 


-- 
Brian G. Peterson
http://braverock.com/brian/
Ph: 773-459-4973
IM: bgpbraverock