Recently I stumbled across an article which I found fascinating. The article discusses the need for "implementation science" in the field of health-care. From the article:

The people paying for research to be completed are rightfully concerned seeing how little the research affects public health practices. Implementation science is used to bridge this gap between research and practice, focusing on how best to implement new evidence into systematic changes in practices.

The lack of follow-through is understandable. The Auckland DHB alone employs more than 11,000 people. We can't expect them to overhaul their standards and procedures every time a paper is published. It may actually be detrimental to have healthcare professionals burdened by constant changes, leading to poorer outcomes for patients.

Two shortcomings in how research is conducted drive the lack of implementation. How the research can realistically be integrated by healthcare professionals is typically not considered before it is undertaken. Additionally, once the work is published, little consideration is given by researchers regarding how the findings can lead to better results for patients.

The need for implementation science shows how research is only the first step in a longer process. How the evidence is used has large ramifications for the end result.

Implementing Ideas in Financial Science

Dimensional Fund Advisors describe themselves as Evidence-Based Investors, focusing on academically proven sources for higher returns. Many prominent figures from the financial world are employed by the fund manager, including several Nobel laureates.

DFA places as much importance on implementation as the underlying evidence. While we tend to focus on the small, value and profitability premiums when describing investment returns, other drivers of returns have been proven.

Momentum is an effect which describes the tendency for a share price to continue rising or falling following for a few months. In other words, if the share price of company X rose over the past month, it is more likely to continue rising for the following 3 months. This has been studied and proven by financial academics.

How can we use this information to benefit investors? The first thing that comes to mind is to buy shares that have gone up recently and sell them after a few months. Momentum funds do exist, attempting to benefit via this strategy.

The trouble is, because momentum comes and goes in such a short period of time, it requires a lot of trading to capture. Not only are there costs when buying and selling shares, the lack of flexibility leads to implicit costs. You may be making large orders at inopportune times and affecting the market price with large trades.

Dimensional carried out extensive research before implementing their own approach to momentum. They implement the research at the trading level. Being well diversified and focusing on long-term drivers of return, they remain flexible when buying and selling.

If there are two comparable companies with similar characteristics, yet one's price has recently trended upwards, they will favour this company when entering their orders. Likewise, they may delay purchasing a company's shares if the price has recently fallen, if statistically the price will most likely continue to fall for the following few months.

Better Results for Clients

Through careful implementation, Dimensional is able to leverage the available research to benefit clients. Without the focus on implementation, underlying premiums are often lost to trading costs.

While much of medical science is left on the operating table, implementation science is improving the way research translates to better results for patients. In the same way, Dimensional strives to efficiently implement financial research in order to provide better outcomes for investors.