The Reality of Models

Checking the weather? Looking at a map of the world to plan your next vacation?

Guess what— you’re using a model.

In investment management, models are used by investors to gain insights that can help inform investment decisions. Financial researchers are frequently looking for new models to help answer questions like “What drives returns?” While models can be useful for gaining insights that can help us make good decisions, they are simplifications of reality.

Because a single model likely can’t capture the complex reality of our world today, investors should be wary of any approach that requires a high degree of trust in a model alone.

For additional information, please feel free to download this complimentary whitepaper.