Abstract

http://ssrn.com/abstract=2156623
 
 

References (60)



 
 

Citations (3)



 


 



Does Academic Research Destroy Stock Return Predictability?


R. David McLean


University of Alberta - Department of Finance and Statistical Analysis

Jeffrey Pontiff


Boston College - Department of Finance

May 16, 2013

AFFI/EUROFIDAI, Paris December 2012 Finance Meetings Paper

Abstract:     
We study the out-of-sample and post-publication return-predictability of 82 characteristics that are identified in published academic studies. The average out-of-sample decay due to statistical bias is about 10%, but not statistically different from zero. The average post-publication decay, which we attribute to both statistical bias and price pressure from aware investors, is about 35%, and statistically different from both 0% and 100%. Our findings point to mispricing as the source of predictability. Post-publication, stocks in characteristic portfolios experience higher volume, variance, and short interest, and higher correlations with portfolios that are based on published characteristics. Consistent with costly (limited) arbitrage, post-publication return declines are greater for characteristic portfolios that consist of stocks with low idiosyncratic risk.

Number of Pages in PDF File: 48

Keywords: anomalies, arbitrage, limits of arbitrage, short selling, predicting stock returns

JEL Classification: G11, G12, G00, G14, L3, C1

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Date posted: October 4, 2012 ; Last revised: May 16, 2013

Suggested Citation

McLean, R. David and Pontiff, Jeffrey, Does Academic Research Destroy Stock Return Predictability? (May 16, 2013). AFFI/EUROFIDAI, Paris December 2012 Finance Meetings Paper. Available at SSRN: http://ssrn.com/abstract=2156623 or http://dx.doi.org/10.2139/ssrn.2156623

Contact Information

R. David McLean (Contact Author)
University of Alberta - Department of Finance and Statistical Analysis ( email )
School of Business
Edmonton, Alberta T6G 2R6
Canada
780-492-8005 (Phone)
780-492-3325 (Fax)
HOME PAGE: http://business.ualberta.ca/rdmclean
Jeffrey E. Pontiff
Boston College - Department of Finance ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
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