Scientific Beta

Financial Times: "EDHEC’s concerns centre on so-called “strategy indices”, such as those classed in modern-day parlance as “smart beta”. Whereas many traditional market indices, such as the S&P 500 or FTSE 100, merely seek to represent an available opportunity set, these strategy indices typically seek to outperform the market, and only exist as commercial products as long as enough investors believe they are capable of outperforming."

Financial Times 09/03/2015

"(...) EDHEC’s concerns centre on so-called “strategy indices”, such as those classed in modern-day parlance as “smart beta”. Whereas many traditional market indices, such as the S&P 500 or FTSE 100, merely seek to represent an available opportunity set, these strategy indices typically seek to outperform the market, and only exist as commercial products as long as enough investors believe they are capable of outperforming. Their creators, often investment banks, therefore have an incentive to ensure that any simulated historical track record or back-tested data they produce points to as strong a performance as is possible. In the absence of transparency, Prof Amenc says there are risks that the index methodology may have been optimised with little or no regard for the stability of persistence of future performance, or that hindsight biases, such as choosing from survivors, using restated data, picking winners or shunning losers can enter a simulation, whether or not there is an intention to mislead. (...)"