The History of the Cross Section of Stock Returns
NBER Working Paper No. 22894
Using data spanning the 20th century, we show that most accounting-based return anomalies are spurious. When examined out-of-sample by moving either backward or forward in time, anomalies' average returns decrease, and volatilities and correlations with other anomalies increase. The data-snooping problem is so severe that even the true asset pricing model is expected to be rejected when tested using in-sample data. Our results suggest that asset pricing models should be tested using out-of-sample data or, when not feasible, by whether a model is able to explain half of the in-sample alpha.
Document Object Identifier (DOI): 10.3386/w22894
Published: Juhani T Linnainmaa & Michael R Roberts, 2018. "The History of the Cross-Section of Stock Returns," The Review of Financial Studies, vol 31(7), pages 2606-2649.
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