Quant Radio: The Factor Mirage

Factor investing is one of the central pillars of modern portfolios — but its foundation may be far less solid than most investors realize. In this episode of Quant Radio, we dive into a paper from ADIA Lab — “Causality and Factor Investing: A Primer” — and unpack a core flaw hiding in plain sight: most factor models are built on correlation, not causation. We explore: - Why backtests can look amazing… and still be completely untradeable - The “factor zoo” and how models get stuffed with false signals - The two hidden villains: confounders and colliders - How adding “safe” control variables can literally flip a trading signal - Why higher R² can sometimes mean a worse model - What causal factor investing looks like — and how it changes everything If you’ve ever trusted a beautiful regression, a clean factor model, or a backtest that looks too good to be true, this episode will give you a much sharper lens for spotting what’s real — and what’s just a backtest mirage. Find the full research paper here: https://community.quantopian.com/c/community-forums/a-protocol-for-causal-factor-investing For more quant-focused content, join us at ⁠⁠⁠⁠https://community.quantopian.com⁠⁠⁠⁠. There, you can explore a wealth of resources, connect with fellow quants, engage in insightful discussions, and enhance your skills through our extensive range of online courses. Quant Radio is an AI-generated podcast, intended to help people develop their knowledge and skills in Quant finance. This podcast is not intended to provide investment advice. Learn more by subscribing to our YouTube channel to access all of our videos. As always, if there are any topics you would like us to focus on for future videos, please comment below or send us a quick note at [email protected]. Disclaimer Quantopian provides this presentation to help people write trading algorithms - it is not intended to provide investment advice. More specifically, the material is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory or other services by Quantopian. In addition, the content neither constitutes investment advice nor offers any opinion with respect to the suitability of any security or any specific investment. Quantopian makes no guarantees as to accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.