Event-Driven Backtesting: Earnings, FOMC, and News
By Daniel Chau
Founder, NeuroBacktest
Learn how to design and backtest strategies around scheduled events and unexpected news.
Markets react to events. Earnings reports, FOMC announcements, and macroeconomic releases create short-term dislocations that event-driven strategies try to exploit.
Types of Events
Scheduled events include earnings, dividends, options expiration, and central bank meetings. Unscheduled events include mergers, geopolitical shocks, and unexpected news.
Designing the Backtest
Build a calendar of event dates, define a holding window around each event, and compare event-day returns to a baseline. Make sure to account for overnight gaps and elevated volatility.
Risk Management
Event strategies can produce large gaps. Use smaller position sizes, wider stops, and never risk a large portion of capital on a single binary outcome.
Frequently Asked Questions
What is event-driven backtesting?▼
It is a style of backtesting where trades are triggered by specific events such as earnings announcements, economic releases, or news sentiment.
What data do I need for event-driven strategies?▼
You need a calendar of events, historical price data around those events, and optionally sentiment or options flow data.
Are event-driven strategies risky?▼
They can be. Volatility spikes around events can lead to large gaps and slippage. Position sizing and stop losses are critical.