What do wine snobs, and Chinese anti-corruption laws have to do with failed statistical arbitrage? Just by reading the previous line aloud I am sure most of the readers already have either fallen sleep or clicked out of this blog.
I have written in the past about the perils of finding spurious correlations in Finance, and particularly about the inability of machine learning algorithms (and some very smart people) to identify the causal model that drives the prices of financial assets. Below we can see a typical model-breaking example, but with tastier assets than subprime mortgage backed derivates.
