Causal factor investing : can factor investing become scientific? / Marcos M. López de Prado, ADIA Lab.
By: López de Prado, Marcos Mailoc [author.]
Language: English Series: Cambridge elements. Elements in quantitative finance: Publisher: Cambridge, United Kingdom ; New York, NY : Cambridge University Press, 2023Description: 1 online resource (81 pages) : digital, PDF file(s)Content type: text Media type: computer Carrier type: online resourceISBN: 9781009397292 ; 9781009397315 (ebook)Subject(s): Investments | Asset allocation | Portfolio managementGenre/Form: Electronic books.Additional physical formats: Print version: : No titleDDC classification: 332.6 LOC classification: HG4521 | .L819 2023Online resources: Full text is available at the Directory of Open Access Books. CLick here to view. Summary: Virtually all journal articles in the factor investing literature make associational claims, instead of causal claims. Authors do not identify the causal graph consistent with the observed phenomenon, they justify their chosen model specification in terms of correlations, and they do not propose experiments for falsifying causal mechanisms. Absent a causal theory, their findings are likely false, due to rampant backtest overfitting and incorrect specification choices. This Element differentiates between type-A and type-B spurious claims, and explains how both types prevent factor investing from advancing beyond its current phenomenological stage. It analyzes the current state of causal confusion in the factor investing literature, and proposes solutions with the potential to transform factor investing into a truly scientific discipline. This title is also available as Open Access on Cambridge Core.| Item type | Current location | Home library | Call number | Status | Date due | Barcode | Item holds |
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EBOOK/OPEN ACCESS
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COLLEGE LIBRARY | COLLEGE LIBRARY | 332.6 L9597 2023 (Browse shelf) | Not for loan |
Open Access
Title from publisher's bibliographic system (viewed on 12 Oct 2023).
Virtually all journal articles in the factor investing literature make associational claims, instead of causal claims. Authors do not identify the causal graph consistent with the observed phenomenon, they justify their chosen model specification in terms of correlations, and they do not propose experiments for falsifying causal mechanisms. Absent a causal theory, their findings are likely false, due to rampant backtest overfitting and incorrect specification choices. This Element differentiates between type-A and type-B spurious claims, and explains how both types prevent factor investing from advancing beyond its current phenomenological stage. It analyzes the current state of causal confusion in the factor investing literature, and proposes solutions with the potential to transform factor investing into a truly scientific discipline. This title is also available as Open Access on Cambridge Core.
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