Causal Factor Investing: Can Factor Investing Become Scientific?
López de Prado, Marcos M.
Virtually all journal articles in the factor investing literature make associational claims, instead of causal claims. Authors do not identify the causal graph consistent with the observed phenomenon, they justify their chosen model specification in terms of correlations, and they do not propose experiments for falsifying causal mechanisms. Absent a causal theory, their findings are likely false, due to rampant backtest overfitting and incorrect specification choices. This Element differentiates between type-A and type-B spurious claims, and explains how both types prevent factor investing from advancing beyond its current phenomenological stage. It analyzes the current state of causal confusion in the factor investing literature, and proposes solutions with the potential to transform factor investing into a truly scientific discipline. This title is also available as Open Access on Cambridge Core.
Thể loại:
Năm:
2023
Nhà xuát bản:
Cambridge University Press
Ngôn ngữ:
english
Trang:
75
ISBN 10:
1009397303
ISBN 13:
9781009397308
Loạt:
Elements in Quantitative Finance
File:
PDF, 3.08 MB
IPFS:
,
english, 2023