TY - JOUR T1 - The Future of Empirical Finance JF - The Journal of Portfolio Management SP - 140 LP - 144 DO - 10.3905/jpm.2015.41.4.140 VL - 41 IS - 4 AU - Marcos López de Prado Y1 - 2015/07/31 UR - https://pm-research.com/content/41/4/140.abstract N2 - Empirical finance is in crisis. The profession’s most important discovery tool is historical simulation, and yet most backtests and time series analyses published in journals are flawed. The problem is well known to professional organizations of statisticians and mathematicians, who have publicly criticized the misuse of mathematical tools among finance researchers. In this article, the author points to three problems and proposes four practical solutions. In an attempt to overcome the challenges posed by multiple testing and selection biaes, the author emphasizes the need to move from an individual-centric to a community-driven research paradigm. Low retraction rates can be corrected through technologies that derive “peer p-values.” Stronger theoretical foundations and closer ties with financial firms would help prevent false discoveries.TOPICS: Portfolio theory, simulations, portfolio management/multi-asset allocation ER -