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Marcos M. López de Prado examines the distinction between association and causation in the study of financial factors. The book asks whether explanations of investment returns can move beyond correlations toward theories that identify mechanisms and can be tested against competing explanations.
The discussion introduces causal inference and causal discovery before examining the role of causality in econometrics and factor investing. It distinguishes two types of spurious claim and considers how model specification and backtest overfitting can affect the interpretation of empirical findings. Monte Carlo experiments provide a controlled setting for exploring these problems.
The emphasis is methodological: how researchers formulate questions, identify causal structures and evaluate evidence. Diagrams, formal reasoning and experiments connect the conceptual argument with practical research choices. This complete scholarly monograph offers a sustained examination of what it would mean for factor investing to develop into an explanatory discipline grounded in testable causal accounts.
Marcos M. López de Prado. Causal Factor Investing: Can Factor Investing Become Scientific?. Cambridge University Press, 2023. https://doi.org/10.1017/9781009397315. Licensed CC BY-NC 4.0; the unchanged original edition and its required notices are retained.