The Pitfalls of Asset Management Research

13 Pages Posted: 5 May 2022 Last revised: 15 Jun 2022

See all articles by Campbell R. Harvey

Campbell R. Harvey

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

Date Written: April 7, 2022

Abstract

We now know that research findings favorable to the sponsor of the research should be discounted on the grounds of conflict of interest (e.g., tobacco companies or pharma companies). Incentives distort research findings. Is the same true in the field of finance? I argue that economic incentives distort outcomes in both academic and practitioner finance research. The problem is somewhat less severe in the practice of finance. An asset manager who overfits their backtest will likely underperform in live trading. As such, they will lose investors and suffer a damaged reputation. Asset management has no equivalent to academic tenure.

Forthcoming, Journal of Systematic Investment

Keywords: Backtesting, overfitting, p-hacking, research misconduct, research culture, performance fees, trading strategies, alpha

JEL Classification: G11, G12, G14, G17, G40, C58

Suggested Citation

Harvey, Campbell R., The Pitfalls of Asset Management Research (April 7, 2022). Available at SSRN: https://ssrn.com/abstract=4078138 or http://dx.doi.org/10.2139/ssrn.4078138

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

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