Read our latest comment featured by Alpha Architect:
Do Trading Costs Destroy Factor Investing?
It seems that everywhere you look there is a promotion related to factor investing and/or smart beta. The incentives to develop strategies with strong backtests are strong, both in academia and in industry. This natural conflict of interest should raise concern for investors who are trying to ascertain the validity of a particular study or investment approach. One must always consider the possibility of data-snooping, overfitting, and transaction costs — do they make the strong results null and void?
Bottomline: investors need to be diligent and think critically when presented hypothetical (live results are arguably more dangerous) results.