… and the Cross-Section of Expected Returns
Hundreds of papers and factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make sense to use the usual criteria for establishing significance. Which hurdle should be used for current research? Our paper introduces a new multiple testing framework and provides historical cutoffs from the first empirical tests in 1967 to today. A new factor needs to clear a much higher hurdle, with a t-statistic greater than 3.0. We argue that most claimed research findings in financial economics are likely false. (JEL C12, C52, G12)
Authors: Campbell R. Harvey, Yan Liu, Caroline Zhu
Citations: 1978
Published: 2015-10-09T00:00:00.000Z
Why It Matters
Venue: Review of Financial Studies. Year: 2015. Citations: 1978. Abstract signal: Hundreds of papers and factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make sense to use the usual criteria for establishing significance. Which hurdle shou...
Abstract
Hundreds of papers and factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make sense to use the usual criteria for establishing significance. Which hurdle should be used for current research? Our paper introduces a new multiple testing framework and provides historical cutoffs from the first empirical tests in 1967 to today. A new factor needs to clear a much higher hurdle, with a t-statistic greater than 3.0. We argue that most claimed research findings in financial economics are likely false. (JEL C12, C52, G12)