Noisy Factors in Law - Prof. Adriana Robertson (Chicago)

For years, academic experts have championed the widespread adoption of the “Fama-French” factors in legal settings. Factor models are commonly used to perform valuations, performance evaluation and event studies across a wide variety of contexts, many of which rely on data provided by Professor Kenneth French. Yet these data are beset by a problem that the experts themselves did not understand: Widespread retroactive changes which can materially affect a broad range of estimates. In this episode of the CLE vlog & podcast series, Prof. Adriana Robertson (University of Chicago) discusses the background and findings of the study "Noisy Factors in Law" with Alessandro Tacconnelli (ETH Zurich). In their study, she and her co-authors Mikhail Simutin and Pat Akey (both University of Toronto) show how these retroactive changes, heretofore overlooked by experts, can have enormous impacts in precisely the settings in which experts have pressed for their use. They provide examples of valuations, performance analysis, and event studies in which the retroactive changes have a large—and even dispositive—effect on an expert’s conclusions. Their analysis demonstrates how even the most well accepted expert approaches can be fraught with hidden peril. Paper References: Adriana Robertson - University of Chicago Mikhail Simutin - University of Toronto Pat Akey - University of Toronto Noisy Factors in Law (Please contact the authors for the latest version) Audio Credits for Trailer: AllttA by AllttA https://youtu.be/ZawLOcbQZ2w