Michael Edesess decries DFA's "dreadful descent into scientism."
Edesess writes that DFA
] has been taking steps in this direction for some time. Edesess writes that DFA has advocated looking at companies with higher profitability in making decisions on equity portfolios and is arguing that financial economics show higher profitability should beget higher expected returns, using what he calls questionable historical evidence.
As DFA became larger, the company hired top marketing professionals and "array of PhDs" from the best schools, Edesess reports, and its proprietary papers have argued that profitability is a dimension of expected return that should be factored into designing a portfolio.
Edesess argues that some of the research is spurious, saying, "Of course, just as the price of a bond or stock changes as the expected income stream changes, the price in Fama and French's model cannot be fixed--not in the real world--as expected future earnings change. Nevertheless, they present this as motivation for tests of the relationship."
Edesess writes that this kind of research only uses the trappings and facade of science to impress customers, and warns that inappropriate and poorly timed models replaced good judgment in advance of the financial crisis.
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