Factor due-diligence capstone

The product of this pathway is a memo a risk committee can accept or reject, not a backtest with a large $t$-statistic. The organising object remains the factor-mimicking portfolio: a holdable book with a named exposure, a named horizon, and a named set of zeros. For standalone book-to-price, the reported row does not clear a conventional screen. A justified rejection is the outcome this note reaches. Promotion would require a different precommitted specification, not a re-cut of the same deciles.

• write the four blocks of the memo: mechanism, test design, implementability, monitoring;
• apply them to book-to-price using only figures the pathway has already sourced;
• state the multiple-testing objection Elton records against treating one three-factor list as the list;
• separate a rejection of this specification from a claim that no value ratio is associated with subsequent returns.

1. The memo
2. What the committee is not being asked to believe