Problem 4: Data mining for persistent winners Oh no! Your boss won't give up. She does not believe that these 1500 funds perform so poorly as a whole. She is convinced that there are winners which you did not find. She goes Maybe these are not the best results possible. Why did you decide on top 20% as winning cut off, why not top 15% or 10% or 5%, to concentrate on the really good funds. Can't you find the winning cutoff that will show the strongest persistence in performance? Then we could invest in these funds. Same for the market, why don't you look at the funds that beat the market by some margin to search for persistence. Maybe the better funds with persistence beat the market with some margin regularly. a) Just thinking about this gives you a headache, but you remember a mandatory reading in one of your financial econometrics courses. It was about exactly what is wrong with your boss's way of thinking. Write a paragraphs answering your boss, politely of course, why her approach is tricky at best. Make sure to quote and mention relevant passages of the article. Make sure to give her an example of why it would not be a good idea to do what she suggests. Problem 4: Data mining for persistent winners Oh no! Your boss won't give up. She does not believe that these 1500 funds perform so poorly as a whole. She is convinced that there are winners which you did not find. She goes Maybe these are not the best results possible. Why did you decide on top 20% as winning cut off, why not top 15% or 10% or 5%, to concentrate on the really good funds. Can't you find the winning cutoff that will show the strongest persistence in performance? Then we could invest in these funds. Same for the market, why don't you look at the funds that beat the market by some margin to search for persistence. Maybe the better funds with persistence beat the market with some margin regularly. a) Just thinking about this gives you a headache, but you remember a mandatory reading in one of your financial econometrics courses. It was about exactly what is wrong with your boss's way of thinking. Write a paragraphs answering your boss, politely of course, why her approach is tricky at best. Make sure to quote and mention relevant passages of the article. Make sure to give her an example of why it would not be a good idea to do what she suggests