The spread of analytics has been good for almost everyone, but it's more important than ever to separate the signal from the noise.

I was attracted to finance because it promised some order amid chaos. Here was this market, with billions of transactions a day – and yet it managed to set a price for each asset, a price that put a literal number on the value of future risks, or more precisely how much people value those risks in the present day. The world is inundated with information – about individual companies, about the macro economy, about geopolitical risk, about (not to get too meta) prices themselves – and this price incorporated all that, almost instantaneously. This is the definition of market efficiency.

Except for one small thing: This number, this price, has always been a little wrong. Data, as it turns out, has issues.

A roiling controversy in finance is a reminder that any certainty anyone ever had was an illusion. It concerns an academic paper that questions the benefits of factor investing, in which investors make decisions based on "factors" such as a company's size or how its share price compares to the value of its assets. The theory is that such investments can deliver better returns than the market as a whole.

Continue reading the entire piece here at Bloomberg Opinion (paywall)

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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.