Anomalies and False Rejections
66 Pages Posted: 14 Aug 2017 Last revised: 23 Jan 2020
Date Written: August 12, 2017
We use information from over two million trading strategies that are randomly generated using real data, and from strategies that survive the publication process to infer the statistical properties of the set of strategies that could have been studied by researchers. Using this set, we compute t-statistic thresholds that control for multiple hypothesis testing when searching for anomalies, at 3.84 and 3.38 for time-series and cross-sectional regressions, respectively. We estimate the expected proportion of false rejections that researchers would produce if they failed to account for multiple hypothesis testing to be 45.3%.
Keywords: Hypothesis testing, False discoveries, Trading strategies
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation