P-hacking and backtest overfitting

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The reproducibility crisis in science

Recent public reports have underscored a crisis of reproducibility in numerous fields of science. Here are just a few of recent cases that have attracted widespread publicity:

In 2012, Amgen researchers reported that they were able to reproduce fewer than 10 of 53 cancer studies. In 2013, in the wake of numerous recent instances of highly touted pharmaceutical products failing or disappointing when fielded, researchers in the field began promoting the All Trials movement, which would require participating firms and researchers to post the results of all trials, successful or not. In

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The seven reasons most econometric investments fail

Marcos Lopez de Prado, recently named 2019 Quant of the Year by the Journal of Portfolio Management, has released a presentation entitled The seven reasons most econometric investments fail.

Lopez de Prado’s overall point is that many widely used econometric approaches in finance either rely on misleading p-value statistics, or else rely on strong assumptions that are typically not satisfied by financial phenomena. Also, most econometric methods in finance do not pay sufficient attention to overfitting, either in the training set or in the testing set. These tools were, for the most part, developed in scientific fields such as

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Ray Dalio on why capitalism must be reformed

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Dalio’s chronicle of capitalism’s ills

Ray Dalio, the founder of the highly successful hedge fund Bridgewater Associates, has written a detailed paper on why present-day capitalism, especially as it exists in the U.S., is in serious trouble and must be reformed, or else society risks increasingly serious social discord and economic dysfunction.

Dalio’s essay contains a treasure-trove of data, statistics and charts documenting the difficulties U.S. society in particular faces in the wake of increasing economic inequality, especially the manifold stresses faced by the less-well-off, and likely outcomes if nothing is done.

Here are some of

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