Finance professor wins national research award

the financial industry,” he said. “The fact that my paper is well-received by the profession, especially by finance practitioners, tells me that we are starting to realize the severity of data mining bias. I hope that the analytical tools provided in my paper can be useful to researchers and practitioners when they try to evaluate the real significance of an investment strategy.”

The Bernstein Fabozzi/Jacobs Levy awards were established in 1999 to honor the journal’s editors, Peter L. Bernstein and Frank Fabozzi, and promote research excellence in the theory and practice of portfolio management.

In their article, Liu and Harvey, a professor at Fuqua School of Business at Duke University and a research associate at the National Bureau of Economic Research in Cambridge, Mass., offer an analysis on backtesting. This is the practice of applying strategy and analytics to historical trading data to determine how well real trading results could have been predicted.

Harvey said it is a great honor to receive the award. “We are in an investment environment where there is intense pressure to produce something that looks good. Unfortunately, this leads to extensive data mining,” he said. “This, in turn, results in impressive backtests that convince many investors to put their money into products that have the propensity to disappoint. I am encouraged by the reception my paper has received in the investment management community. Managers don’t want to disappoint clients, and my paper provides new tools to help them make sure they don’t.”

According to Bruce Jacobs, principal and co-founder of Jacobs Levy Equity Management, Harvey and Liu, who also took the top prize last year, “continue to contribute vital insights into a very important issue: how to tell if the findings obtained from research ‘in the lab’ will hold up to deliver like results in the real world.”