Scientific Beta

Benefits and Pensions Monitor: "Making frequent changes to index methodologies are a threat for investors, says a study jointly published by Scientific Beta and Scientific Analytics. 'Inconsistent Factor Indices: What are the Risks of Index Changes?' provides concrete examples from industry practices and analyzes the possible implications of such inconsistencies, namely changes in factor definitions, factor selection, and portfolio construction principles."

Benefits and Pensions Monitor 25/03/2019

"(...) Making frequent changes to index methodologies are a threat for investors, says a study jointly published by Scientific Beta and Scientific Analytics. 'Inconsistent Factor Indices: What are the Risks of Index Changes?' provides concrete examples from industry practices and analyzes the possible implications of such inconsistencies, namely changes in factor definitions, factor selection, and portfolio construction principles. It also shows that methodological changes are quite common in the industry and sometimes happen across multiple dimensions at the same time, which can lead to striking differences in the performance of multi-factor indices. The main problems with inconsistencies across time are data-mining risks and therefore the absence of any robustness and reliability of the performance presented. Professor Noël Amenc, CEO of Scientific Beta, says, "Providers can put stringent requirements on index changes by remaining consistent with their investment principles. Indeed, if the urge to 'innovate' means deviating from investment principles that were not really justified by serious research and corresponded more to approaches driven by in-sample back-testing, there is a risk that index investors will be disappointed with results." (...)"