FYI: Key Points:
The outperformance observed before a typical smart beta index is launched virtually disappears once it’s live, yet most investors are making decisions on backtest results.
Two traits common to backtests—overfitting (or data-snooping bias) and ignoring transaction costs—bias investors’ live return expectations higher than may be realistic.
By expecting lower performance than backtest results show, questioning how those results were achieved, and selecting a strategy built on sound economic theory, smart beta investors can frame more realistic performance expectations.
Regards,
Ted
http://www.etf.com/sections/features-and-news/research-affiliates-live-newport-beach-its-smart-beta?nopaging=1
