Sorting Out Sorts

22 Pages Posted: 10 Jul 2000 Last revised: 25 Aug 2010

See all articles by Jonathan Berk

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

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Date Written: September 1998

Abstract

In this paper we analyze the theoretical implications of sorting data into groups and then running asset pricing tests within each group. We show that the way this procedure is implemented introduces a severe bias in favor of rejecting the model under consideration. By simply picking enough groups to sort into even the true asset pricing model can be shown to have no explanatory power within each group.

Suggested Citation

Berk, Jonathan B., Sorting Out Sorts (September 1998). NBER Working Paper No. t0235. Available at SSRN: https://ssrn.com/abstract=226644

Jonathan B. Berk (Contact Author)

Stanford Graduate School of Business ( email )

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