Thoughts On Backtesting

So I have a few methodological thoughts on backtesting strategies. The lack of sound methods in studies is problematic in my opinion. If anyone has some insight into this I'd appreciate it.

I'm going to lay out what I consider three common problems in empirical research into backtesting investing strategies. Not all studies suffer from all three problems but I think a lot do. And I think attempting to address these is a good start.

Arithmetic and Geometric Returns

Many times when expressing returns, the arithmetic returns are used instead of geometric returns. This is actually quite problematic. But there are ways of actually relating the two returns which I'll share today.