Where’s the Beef?

Forthcoming, The Journal of Investing.

15 Pages Posted: 16 Feb 2022 Last revised: 9 Mar 2022

See all articles by Robert D. Arnott

Robert D. Arnott

Research Affiliates, LLC

Amie Ko

Research Affiliates

Lillian J. Wu

Research Affiliates, LLC

Date Written: February 15, 2022

Abstract

In the 1980s, there was a famous TV ad for Wendy’s with the tagline “Where’s the Beef?” Many investors in today’s so-called smart beta strategies may well be asking a similar question, “Where’s the Alpha?” Investors frequently buy into historical simulations or backtests, often supported by compelling studies by respected academics, suggesting wonderful performance with remarkable consistency, only to earn no alpha once they invest. The only winners typically are the asset managers and brokers through their fees and commissions. The problem is data mining and performance chasing, the nemeses of all investors. Yes, academics, “quants,” and investment professionals are all subject to these same temptations, very nearly to the same extent as retail investors. This article explores the ways that seasoned professionals fall prey to these simple blunders, and the lessons that could perhaps allow us to deliver on client expectations, both by delivering more, and by encouraging more sensible expectations.

Keywords: performance chasing, data mining, investor expectations gap, smart beta, valuation, noise trading, implementation shortfall

JEL Classification: G10, G11, G17, G40, G41

Suggested Citation

Arnott, Robert D. and Ko, Amie and Wu, Lillian J., Where’s the Beef? (February 15, 2022). Forthcoming, The Journal of Investing., Available at SSRN: https://ssrn.com/abstract=4035890 or http://dx.doi.org/10.2139/ssrn.4035890

Robert D. Arnott (Contact Author)

Research Affiliates, LLC ( email )

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949-325-8700 (Phone)
949-325-8901 (Fax)

HOME PAGE: http://www.researchaffiliates.com/Our%20Firm/Our%20Team/Pages/Rob-Arnott.aspx

Amie Ko

Research Affiliates ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

Lillian J. Wu

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

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