Model, Hypothetical, and Backtested Performance — Best Practices

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Investment Performance Measurement Feature Articles
February 2009 | Vol. 2009 | No. 1
Source: CFA Institute
David D. Spaulding, CIPM Steven W. Stone

Summary

The use of theoretical performance, such as performance of a model portfolio, is not an uncommon practice, but little guidance exists concerning its use. In this article, we will address the issues concerning the use of theoretical performance, summarize the regulatory implications and risks of using such presentations, and finally suggest best practices and appropriate disclosures.

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