CFEM Faculty Marcos Lopez de Prado Receives Bernstein Fabozzi/Jacobs Levy Award
Lopez de Prado's article, published in The Journal of Portfolio Management, identifies a significant logical inconsistency within the factor investing literature. He argues that while factor models are intended to have a causal interpretation, researchers virtually never justify their model specification choices in causal terms, hence the question “where are the factors in factor investing?” This oversight leads to misspecified models and the publication of false positives. Furthermore, through Monte Carlo experiments, he shows that misspecified factor models may be so biased as to estimate... Read more