Replicating Anomalies

Review of Financial Studies, forthcoming

Fisher College of Business Working Paper No. 2017-03-010

Charles A. Dice Center Working Paper No. 2017-10

134 Pages Posted: 31 Oct 2018

See all articles by Kewei Hou

Kewei Hou

Ohio State University (OSU) - Department of Finance

Chen Xue

University of Cincinnati

Lu Zhang, 张橹

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2018

Abstract

Most anomalies fail to hold up to currently acceptable standards for empirical finance. With microcaps mitigated via NYSE breakpoints and value-weighted returns, 65% of the 452 anomalies in our data library, including 96% of the trading frictions category, cannot clear the single test hurdle of the absolute t-value of 1.96. Imposing the higher, multiple test hurdle of 2.78 at the 5% significance level raises the failure rate to 82.1%. Even for the replicated anomalies, their economic magnitudes are much smaller than originally reported. In all, capital markets are more efficient than previously recognized.

Keywords: Replication, factor investing, anomalies, microcaps, multiple testing

JEL Classification: G12, G14

Suggested Citation

Hou, Kewei and Xue, Chen and Zhang, Lu, Replicating Anomalies (October 2018). Review of Financial Studies, forthcoming; Fisher College of Business Working Paper No. 2017-03-010; Charles A. Dice Center Working Paper No. 2017-10. Available at SSRN: https://ssrn.com/abstract=3275496

Kewei Hou

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Chen Xue

University of Cincinnati ( email )

College of Business Administration
Cincinnati, OH 45221
United States
(513) 556-7078 (Phone)

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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