Certainly there is value in the work of academicians in university departments of finance and economics. To state one example, the Black-Scholes formula for the appropriate price of a stock option is a mathematical achievement— it is based on Itô’s stochastic calculus and the theory of heat conduction— and outside of the realm of the listed stock-option market it helpfully informs us that there are inevitable cumulative costs of stop-loss trading of which we should be wary.

    And the basic principles of statistical analysis have primarily been advanced by academicians and are indispensable for charactering the trustworthiness of any scheme for asset allocation that we might produce. The refutation of the “null hypothesis”, the counterclaim to the effect that a good outcome is really just due to chance, is an approach that can be indispensable and the concept is the work of an academic statistician.

    Fairly often academicians produce helpful innovations that they steadily improve upon. However we cannot simply indiscriminately apply academic works, even those that have gained quite some amount of traction in academia. Some of the theories are based partly on assumptions about human behavior and as such are fundamentally speculative. The history of theories of economics and finance is such that after just a few decades some are refuted by the next crop of up-and-coming academicians.

    Concerns even arise about the more mathematically-based theories— concerns that are quite relevant to the work of the Traded Portfolio project. For example there is a scheme by the late Professor Halbert Lynn White Jr. that computes a figure of merit called White’s Reality Check, which is designed to be applied to programs such as those that are offered on this site. It tends to depict many programs for actively managing asset allocations as finding systematic benefits where there are none. However, after a few years his work was itself refuted by another academician and was shown to too often accidentally discard worthy programs. Well before White, no sooner had Sir Ronald Aylmer Fisher proposed the very fundamental idea of the null hypothesis (1935) but that two other academicians met with some success in challenging his approach as being not quite right.

    It suffices then to say that although this project is being conducted with some considerable regard for and use of the works of academicians, the emphasis is on presenting a mathematically-correct, easily understood and clearly valid empirical approach.