Overcoming Data Quirks to Design Trading Strategies

Stock price data are widely available, so you can expect that many trading strategies have already been uncovered by your competitors. Furthermore, the data you will use in performing event studies and backtesting strategies cannot be used without special care. This chapter will outline some of the main pitfalls in price data and coping strategies to overcome those pitfalls. Our list is hardly exhaustive, but it will provide a sense of the nuances you must anticipate.

Actual versus Adjusted Stock Price Data

Naive use of stock price data as reported by financial services—termed here actual price data—can be misleading. The reason is that stock prices often change for reasons that have ...

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