Scientific Beta

Canadian Investment Review: "With factor investing reaching high levels of popularity, a new paper by Scientific Beta is cautioning that a proliferation of new factors that aren’t academically validated could lead to unintended exposures and misunderstandings about risk exposures. “Investors can choose to rely on standard factors that have survived the scrutiny of countless empirical studies and have been independently replicated and validated,” noted the paper. “Alternatively, they can choose to forego this free due diligence and take on the risk of selecting a provider-specific factor definition, which is somewhat similar to taking on the risk of selecting an active manager.”"

Canadian Investment Review 12/03/2019

"(...) With factor investing reaching high levels of popularity, a new paper by Scientific Beta is cautioning that a proliferation of new factors that aren’t academically validated could lead to unintended exposures and misunderstandings about risk exposures. “Investors can choose to rely on standard factors that have survived the scrutiny of countless empirical studies and have been independently replicated and validated,” noted the paper. “Alternatively, they can choose to forego this free due diligence and take on the risk of selecting a provider-specific factor definition, which is somewhat similar to taking on the risk of selecting an active manager.” Commonly used factors include size, momentum, value, profitability and investment, the paper noted. Yet many providers are using other proprietary factors, which can come along with a host of issues, noted the paper. For example, commercial factors are based on complex composite definitions, providing flexibility that can be used to seek out factors with the highest performance in a dataset. This can lead to the rise of spurious factors, which can work well in smart datasets but are useless in reality. (...)"