The 2-Century Investment Mystery
Why are there persistent free-lunch strategies?
A Common Practice
First and foremost, most investment researchers seek positive (or negative) conclusions. Confirming the null hypothesis does no good at all. The aim is either to be published or to arrive at a new investment scheme. Neither goal is achieved by learning that the factors are unrelated. What matters are results!
No surprise, then, that investment analysts are adept at discovering "anomalies"--investment oddities that can be discussed in a paper, used as an exchange-traded-fund strategy, or both. (If such anomalies did not exist, one might say, it would be necessary to invent them.) Analysts scour for data that support their views, but they tend to be much less diligent with disconfirming evidence.
John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.