Why Is Systematic Investing Important?

Forthcoming, Journal of Systematic Investing, 2021

6 Pages Posted: 19 Mar 2021

See all articles by Campbell R. Harvey

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Date Written: February 13, 2021

Abstract

In this era of inexpensive computation and vast data, systematic, or algorithmically driven, investment is increasingly popular. Systematic strategies appear in stand-alone products as well in tail-hedging and defensive-overlay strategies. Indeed, given the enormous growth in data, it is becoming infeasible to process these data without the assistance of systematic tools. The key advantage of the systematic approach is the discipline it imposes—for example, machines are not plagued by behavioral issues such as disposition bias, and in a time of crisis, a systematic strategy keeps a “cool head.” Systematic approaches also pose many challenges. Systematic strategies may not quickly adapt to structural changes in the market. They also present the risk of “tech-washing” whereby an investment product claims to use “the latest machine-learning tools,” but the tools are misapplied or play a minimal role. Importantly, when systematic tools are applied by an inexperienced researcher, the backtests are often overfit, leading to disappointing performance in live trading.

Forthcoming, Journal of Systematic Investing, 2021.

Keywords: Systematic investing, quantitative investing, algorithmic investing, alpha, backtest, machine learning, overfitting, behavioral bias, big data, tech-washing

JEL Classification: G11, G12, G13, G14, G41, C58

Suggested Citation

Harvey, Campbell R., Why Is Systematic Investing Important? (February 13, 2021). Forthcoming, Journal of Systematic Investing, 2021, Available at SSRN: https://ssrn.com/abstract=3785370 or http://dx.doi.org/10.2139/ssrn.3785370

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
245
Abstract Views
754
rank
148,998
PlumX Metrics