Download this Paper Open PDF in Browser

The Future of Empirical Finance

Journal of Portfolio Management, 41(4). Summer 2015. Forthcoming.

12 Pages Posted: 24 May 2015 Last revised: 5 Jul 2015

Marcos Lopez de Prado

Guggenheim Partners, LLC; Lawrence Berkeley National Laboratory; Harvard University - RCC

Date Written: May 31, 2015


Empirical Finance is in crisis: Our most important discovery tool is historical simulation, and yet, most backtests and time series analyses published in journals are flawed. The problem is well-known to professional organizations of Statisticians and Mathematicians, who have publicly criticized the misuse of mathematical tools among Finance researchers. In this note I point to three problems and propose four practical solutions. In an attempt to overcome the challenges posed by multiple testing and selection bias, I emphasize the need to move from an individual-centric to a community-driven research paradigm. Low retraction rates can be corrected through technologies that derive “peer p-values”. Stronger theoretical foundations and closer ties with financial firms would help prevent false discoveries.

Keywords: Empirical research, false discovery, multiple testing, physics envy

JEL Classification: G0, G1, G2, G15, G24, E44

Suggested Citation

Lopez de Prado, Marcos, The Future of Empirical Finance (May 31, 2015). Journal of Portfolio Management, 41(4). Summer 2015. Forthcoming.. Available at SSRN: or

Marcos Lopez de Prado (Contact Author)

Guggenheim Partners, LLC ( email )

330 Madison Avenue
New York, NY 10017
United States


Lawrence Berkeley National Laboratory ( email )

1 Cyclotron Road
Berkeley, CA 94720
United States


Harvard University - RCC ( email )

26 Trowbridge Street
Cambridge, MA 02138
United States


Paper statistics

Abstract Views