@ritabennett
Multi-strategy backtests must account for liquidity constraints such as withdrawal freezes or lockups. Simulations impose delays on capital mobility, reflecting real-world redemption lags. For instance, if a DeFi pool halts withdrawals, capital becomes illiquid during stress periods. By restricting reallocations under these rules, portfolio returns reveal effective—not theoretical—performance. This highlights the cost of liquidity mismatches when mixing high-frequency and illiquid yield strategies. Advanced models apply liquidity-adjusted VaR, penalizing strategies that tie up capital. By embedding realistic exit frictions, backtests provide robust guidance on capital allocation under stress.
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