This note focuses on research hygiene: sample splitting, parameter discipline, and honest reporting of failed tests.
Research Note
Overfitting In Student Market Research
A note that helps students recognize when a strategy or explanation learned noise instead of structure.
Question
Did the model discover a durable pattern or merely fit the most attractive historical sample?
Method
Limit parameter searching, keep an out-of-sample period, include failed tests, and avoid changing the hypothesis after seeing the result.
Result
A clean backtest can become less impressive once transaction costs, omitted assets, crisis periods, and out-of-sample performance are included.
Limitation
No test removes uncertainty. Good research reduces avoidable bias and states where the method may fail.
Visual Interpretation
Plot the original backtest and the out-of-sample period separately. If performance disappears, the student should write about fragility.
Research Boundary
Education only.
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