Most papers in the financial literature estimate the p-value associated with an investment strategy, without reporting the power of the test used to make that discovery. In this paper we provide analytic estimates to Type I and Type II errors for the Sharpe ratios of investments, and derive...

Most investment strategies uncovered by practitioners and academics are false. This partially explains the high rate of failure, especially among quantitative hedge funds (smart beta, factor investing, stat-arb, CTAs, etc.) In this paper we examine why false positives are so prevalent in...