The AVC Backtest: Ensuring Data Validity
The AVC Backtest functions as an addendum to the primary Asset Valuation Curves releases and focuses on ascertaining the validity and soundness of the AVC.
Our underlying data is a mix of data points stemming from our Asset Valuation Curves releases as well as from associated brands under the RB. Global umbrella. Two of our most prominent sources are Ritchie Bros. Auctioneers and Mascus, covering both auction and listings data, respectively.
These data points, as well as the methodology itself, have both undergone heavy internal scrutiny and is currently aligned to the European Central Bank’s Capital Adequacy Directive, Basil III.
The Cornerstones of a Backtest
There are two primary aspects being discussed in our backtesting reports: the methodology behind the backtesting process as well as the results of the performed process.
The methodology section takes a closer look at how the underlying data is collected and utilized throughout the backtest. In short, the backtest process present the mix of data points in charts and curves. Each chart covers a specific equipment product group and displays how the prices of said objects depreciate over time. This allows for direct comparisons to take place between the AVC values and real-life sales data. The findings of these comparisons are then presented in the results section, along with other appropriate statistical measures.
In short, the methodology section discusses the underlying data and our methods, while the results section present our findings.
A short section covering regional market trends is also included in the report. This allows us to better contextualize the findings of the backtest and put them into a more regional perspective. It also helps to demonstrate just how well the values of the AVC correlate to current trends.
Ultimately, performing all the steps of the backtesting process helps to ensure that the underlying AVC remains valid and sound over a multitude of different equipment product groups.
Example of a Backtest Curve
Each chart in the backtest covers how the prices of specific equipment depreciate over a ten-year span–whereas the initial value is based on newly manufactured objects. The example chart to the right shows how we choose to present our findings in the report. Five curves are utilized in conjunction with the chart in order to cover several important aspects of the backtest. All of these aspects combined results in a more nuanced take on the overarching price depreciation and helps to validate the underlying values behind the AVC.
Out of all curves, the most important one would have to be the AVC-Index curve, which represents how the value of equipment within said product group depreciates over time, expressed as a percentage of the initial value. The remaining four curves are all based on statistical measures that have been performed on our database of sold objects. The Average Price curve represents the average price of sold objects within the chosen product group. Meanwhile, the P25, P50, and P75 curves all represent certain price percentiles, each covering the 25th, 50th, and 75th pricing percentiles, respectively.