Ranking Empirical Evidence in Finance

Abstract

Recent progress in causal inference has opened a path, however difficult, for advancing financial economics beyond its current phenomenological stage. The goal of this article is to propose a hierarchy of empirical evidence, recognizing that not all types of observations have the same scientific weight, in the sense of enabling the falsification of causal claims.

Keywords: Association, causation, causal inference, causal discovery, causal mechanism, confounder, factor investing, backtest overfitting.

JEL Classification: G0, G1, G2, G15, G24, E44.