Abstract

http://ssrn.com/abstract=2156623
 
 

References (60)



 
 

Citations (8)



 


 



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

January 7, 2015

Journal of Finance, Forthcoming

Abstract:     
We study the out-of-sample and post-publication return-predictability of 97 variables that academic studies show to predict cross-sectional stock returns. Portfolio returns are 26% lower out-of-sample and 58% lower post-publication. The out-of-sample decline is an upper bound estimate of data mining effects. We estimate a 32% (58% - 26%) lower return from publication-informed trading. Post-publication declines are greater for predictors with higher in-sample returns, and returns are higher for portfolios concentrated in stocks with high idiosyncratic risk and low liquidity. Predictor portfolios exhibit post-publication increases in correlations with other published-predictor portfolios. Our findings suggest investors learn about mispricing from academic publications.

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: March 5, 2015

Suggested Citation

McLean, R. David and Pontiff, Jeffrey, Does Academic Research Destroy Stock Return Predictability? (January 7, 2015). Journal of Finance, Forthcoming. 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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