What is robustness?

It's an attribute of financial markets where they continue to perform as expected despite the change of certain parameters in an economic model of that market. It means that a model of a market works even as conditions change beyond the original ones.

Where have you heard about robustness?

If you are an investor you will have used many financial models. If they are robust models they can provide more reliable information even as prices rise or fall, interest changes, or other unforeseen variables affect the market you are studying.

What you need to know about robustness.

You can test the robustness of a financial or economic model by dramatically changing the inputs of the model. If you continue to get the same results, the model can be considered robust. Traders use technical analysis to test the robustness of their models. They continually test and optimise their models.

The changes to be considered can be up-trends and down-trends in a market, sudden government policy changes. They can even be a natural disaster or a country going to war.

If a model is not robust then a loss can be made as well as a profit.

Find out more about robustness.

To find out more about robustness, see our definitions of resilience, technical analysis and financial models.