Scientific Beta

Traders: "A new study from Scientific Beta entitled "The Risks of Deviating from Academically Validated Factors" highlights the dangers of not adhering to academic consensus when it comes to factor investing. Among the key points of the study: Factors used in investment practice show a stark mismatch with factors that have been documented by financial economists; Commercial factors are based on complex composite definitions that offer maximum flexibility. Providers use this flexibility to seek out the factors with the highest performance in a given dataset; Such practice allows spurious factors to be found. Spurious factors work well in a small dataset but will be useless in reality. Therefore, many factors that appear in popular investment products and analytic tools are likely false."

Traders 13/03/2019

"(...) A new study from Scientific Beta entitled "The Risks of Deviating from Academically Validated Factors" highlights the dangers of not adhering to academic consensus when it comes to factor investing. Among the key points of the study:

Factors used in investment practice show a stark mismatch with factors that have been documented by financial economists.
Commercial factors are based on complex composite definitions that offer maximum flexibility. Providers use this flexibility to seek out the factors with the highest performance in a given dataset.
Such practice allows spurious factors to be found. Spurious factors work well in a small dataset but will be useless in reality. Therefore, many factors that appear in popular investment products and analytic tools are likely false. (...)"