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Darkest Quant Fears Ring True in $1 Trillion World of Smart Beta

  • Smart-beta indexes win in backtest but misfire in reality
  • Research shows ‘risk of data mining’ in proliferation of ETFs

It’s every quant’s nightmare: Trades that look good on paper break down in the real world. And in the $1 trillion business of smart-beta investing, it’s happening on an industrial scale.

According to a new study, hundreds of strategies that showed significant outperformance in backtesting are failing to live up to their hype once they are packaged up and sold as exchange-traded funds.