Correcting the Factor Mirage: A Research Protocol for Causal Factor Investing
“We prove that specification errors can cause factor strategies to underperform and potentially yield systematic losses, even if all risk premia remain constant and are estimated with the correct sign.”
AssetEquities
StrategyFactor investing
TechniqueLinear factor modelmathematical derivation
Missing from abstract: benchmark, out-of-sample test, costs, multiple testing, universe
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