Scientific Beta

IPE: "Scientific Beta reiterated the arguments in a paper published earlier this year. It concluded: “Factors used in investment practice show a stark mismatch with factors that have been documented by financial economists. […] Therefore, many factors that appear in popular investment products and analytic tools are likely false.” The authors argued that factors as defined by commercial analytic tools are unlikely to persist and that relying on those definitions can lead to unintended exposures."

IPE Special Report on Factor Investing, April 2019

"(...) Scientific Beta reiterated the arguments in a paper published earlier this year. It concluded: “Factors used in investment practice show a stark mismatch with factors that have been documented by financial economists. […] Therefore, many factors that appear in popular investment products and analytic tools are likely false.” The authors argued that factors as defined by commercial analytic tools are unlikely to persist and that relying on those definitions can lead to unintended exposures. “Available factor products thus do not deliver on the promise of factor investing,” they said. (...) The big question, Goltz says, is whether research results can be replicated. In the academic literature, research results using standard definitions of factors have been replicated countless times. Conversely, the results of tests that use non-standard definitions have not been replicated to an extent that makes them scientifically acceptable, Goltz argues. “Given the risk of ending up with the wrong factors, it is much safer for investors to stay with the standard ones, on which there is lots of consensual evidence”, he says. (...)"