Hi all, Have you experienced the following? When building continuous contract using the backward adjustment and forward adjustment method, there is a trend or drift, very obvious... is that a fake trend? or there is something real there? Any thoughts?
There's always a bias when you build continuous contracts. The only good answer is to trade the real contracts and take roll into account just like you need to do in "real life". Otherwise, you'll be simulating with prices that never existed and thus never were tradeable. That's only good for a high school science project (or as a waste of time).
It is real, it is the roll yield being earned/paid as the futures-spot basis goes towards 0 when you move closer the next day you splice the contracts. But it can be confusing in a continuous contract series.