[danicgross]

Interesting.

How do you think about backtesting? There are a few short-only shops that specialize in finding frauds. If you get their historical 13-Fs, how would you score against them in terms of precision/recall?

And I guess more broadly, how does alpha with your system compare to a portfolio that holds all short positions by big long/short funds (ex thematic shorts)? Meaning, those guys have full-time humans that focus on this... can you beat them? Very interesting if so.

[kbennatti]

RE: backtesting we use SEC enforcement actions related to fraud (10b-5) as our gold label. That said, there is no gold label for absence of fraud so our backtested metrics are probably slightly better than they seem.

We've never tried to score a short fund on their precision/recall but unofficially, Hindenburg Research has the highest concordance with our models in deployment.

[kbennatti]

Re: alpha -> our focus is on extracting red flags that are similar to what a forensic accountant/analyst would find. AI-assisted research rather than AI driven. trading on fraud signals alone is pretty hard, you need another event. we havent done quant testing of our risk scores in a while. We definitely should do proper quant backtesting though.