Finding an Undiscovered Factor

Here’s the latest entry in Tadas Viskanta’s Blogger Wisdom:

Question: Assume you have discovered an equity return factor that is both previously unknown and uncorrelated with other factors. What would you do to monetize that insight?

Here’s a sampling of answers:

Ben Carlson, A Wealth of Common Sense, @awealthofcs, author of Organizational Alpha: How to Add Value in Institutional Asset Management:

Setting up a hedge fund and leveraging that factor would seem to make sense but that just opens you up to competition. I guess the best thing to do would be to set up an index and license it out to all of the smart beta ETF and mutual fund providers and be the gatekeeper on it.

Eddy Elfenbein, Crossing Wall Street, @eddyelfenbein:
Discovering the factor is just one step. That doesn’t mean it has a trend of any sort, either up or down. Plus, if it’s truly uncorrelated, then it’s only value is at the service of diversification. Personally, I would build an index or ETF to monetize it.

Morgan Housel, Collaborative Fund, @morganhousel:
First I’d double check my math. Then I’d give it to the 10 smartest people I know and ask them to rip it apart. Cherry picking is rife in the backtest world.

Posted by on October 18th, 2017 at 1:24 pm


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