Time-Period Basis

AAA

DEFINITION of 'Time-Period Basis'

An implication surrounding the use of time-series data in which the final statistical conclusion can change based on to the starting or ending dates of the sample data. The concept discourages using a smaller time series, as chance events are more likely to be reflected in the conclusion.

INVESTOPEDIA EXPLAINS 'Time-Period Basis'

When testing various investment strategies, the time-series basis can be significant. Idiosyncratic events or using a time frame that only captures certain business cycles can make certain strategies appear more profitable than they really are. To help avoid the time-period basis when testing investment ideas, one should use very long periods of sample data.

For example, let's test a momentum strategy in which an investor enters a long or short position in a stock that has a rapid price increase or decrease. The investor identifies a stock to buy for the testing period. If the strategy is tested during a period where the entire market was strengthening, it could make the momentum strategy appear very profitable. However, if the profits were driven only by the conditions of the market, then the strategy would become dangerous in an economic downturn. Extending the testing period to allow full business cycles would reveal the true profitability of the strategy.

RELATED TERMS
  1. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  2. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  3. Idiosyncratic Risk

    Risk that is specific to an asset or a small group of assets. ...
  4. Time Horizon

    The length of time over which an investment is made or held before ...
  5. Momentum

    The rate of acceleration of a security's price or volume. The ...
  6. Cape Cod Method

    A method used to calculate loss reserves that uses weights proportional ...
RELATED FAQS
  1. What is the difference between the cost of capital and the discount rate?

    The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >>
  2. How does the market share of a few companies affect the Herfindahl-Hirschman Index ...

    In economics and commercial law, the Herfindahl-Hirschman Index (HHI) is a widely used measure that indicates the amount ... Read Full Answer >>
  3. What does the rule of 70 indicate about a country's future economic growth?

    The rule of 70 could be used to indicate the approximate number of years that it would take a company's economic growth to ... Read Full Answer >>
  4. How is the rule of 70 related to the growth rate of a variable?

    The rule of 70 is related to the growth rate of a variable because it uses the growth rate in its approximation of the number ... Read Full Answer >>
  5. What is a "linear" exposure in Value at Risk (VaR) calculation?

    A linear exposure in the value-at-risk, or VaR, calculation is represented by positions in stocks, bonds, commodities or ... Read Full Answer >>
  6. What is the criteria for a simple random sample?

    Simple random sampling is the most basic form of sampling and can be a component of more precise, more complex sampling methods. ... Read Full Answer >>
Related Articles
  1. Trading Strategies

    Momentum Trading With Discipline

    This type of strategy demands controlled decision-making, requiring a continual refinement of entry and exit techniques.
  2. Fundamental Analysis

    Sector Rotation: The Essentials

    We look at how the market signals impending economic cycles and sector performance during each stage.
  3. Investing

    The Ups And Downs Of Investing In Cyclical Stocks

    This strategy can be profitable but only if you know when to dump these stocks.
  4. Active Trading Fundamentals

    Identifying Market Trends

    The success or failure of your long- and short-term investing depends on recognizing the direction of the market.
  5. Active Trading Fundamentals

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  6. Trading Strategies

    Market Strength Tutorial

    Here you can learn about some of the indicators that traders and brokers use to determine the direction and strength of the market's present trend.
  7. Fundamental Analysis

    What is a Representative Sample?

    In statistics, a representative sample accurately represents the make-up of various subgroups in an entire data pool.
  8. Economics

    Explaining Financial Analysis

    Financial analysis is a general term that refers to using financial data to make business and investment decisions.
  9. Fundamental Analysis

    How to Calculate a Turnover Ratio

    A turnover ratio measures a mutual fund’s level of trading activity in a given time period, usually a year.
  10. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center