Working Papers vs. Journal Articles?

A reader commented and asked: “The problem with SSRN is that most papers published there are working papers, placed there to receive comments. Before any of these papers appear in a journal, they undergo peer review, one of the most important processes in scientific research. Experienced researchers in the field thereby filter out all the mistakes, wrong methods, incorrect conclusions, etc. How do you know that the working papers are not dramatically adjusted before publication in a peer-reviewed journal?”

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Your concern that the findings of working papers are not as reliable as the findings of papers published in journals is reasonable. Some observations are:

By summarizing working papers, CXOadvisory.com offers investors exposure to draft and preliminary academic research as a tradeoff between early availability and reliability of ideas. Investors experience being wrong so often that many are interested in comparing such research to their investing/trading experiences and practices. In other words, the research standards for practical investing and “settled” science are different.

The quality of working papers from academia is as high as, or higher than, that of many analyses available to investors from investment industry sources and from other investors.

The findings of papers published in journals change over the years, sometimes dramatically. (The chart in “Why the Story on Predictability Keeps Changing”, the comments reported in “Some Notes on Financial Econometrics” and the conclusions reported in “A Few Notes from My Life as a Quant, Reflections on Physics and Finance“ are instructive.) In other words, it is arguable whether peer review filters out all the mistakes, wrong methods and incorrect conclusions.

Upon discovery of updates to previously summarized working papers, CXOadvisory.com updates the summaries. (See, for example, “Update: Gold as Hedge and Safe Haven”, “Update: The ‘Best’ Equity Risk Premium” and “Update: Beat the Market with Hot-Anomaly Switching?”.) This update process is, however, imperfect.

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