Causal factor investing : can factor investing become scientific? / Marcos M. López de Prado, ADIA Lab.

Format:

Book

Author/Creator:

López de Prado, Marcos Mailoc, author.

Series:

Cambridge elements. Elements in quantitative finance, 2631-8571.

Cambridge elements. Elements in quantitative finance, 2631-8571

Language:

English

Subjects (All):

Investments.

Asset allocation.

Portfolio management.

Physical Description:

1 online resource (81 pages) : digital, PDF file(s).

Place of Publication:

Cambridge, United Kingdom ; New York, NY : Cambridge University Press, 2023.

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.

Notes:

Open Access

Title from publisher's bibliographic system (viewed on 12 Oct 2023).

Other Format:

Print version:

ISBN:

9781009397315 (ebook)

Access Restriction:

Restricted for use by site license.