by Andrew W. Lo
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Start with the foundations, then use the reading focus to connect the paper to further study.
Read the distributions and expectations used in probabilistic arguments.
Interpret expectations after information is observed.
Check whether a relationship can be estimated consistently over time.
Read the fitted relationship and its residuals.
Assess uncertainty rather than treating an estimate as a fact.
Study long-run relationships without confusing them with correlation.
Check the assumptions behind reported estimates.
Choose a reproducible strategy, specify the trading rule, and test what remains after costs and estimation uncertainty.
A related implementation of strategy evaluation and Sharpe-ratio diagnostics.
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