Causal Factor Investing: Can Factor Investing Become Scientific?

Virtually all journal articles in the factor investing literature make associational claims, in denial of the causal content of factor models. Authors do not identify the causal graph consistent with the observed phenomenon, they justify their chosen model specification in terms of correlations, and they do not propose experiments for falsifying causal mechanisms. Absent a causal theory, their findings are likely false, due to rampant backtest overfitting and incorrect specification choices...