Download This PaperReplicating 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
There are 3 versions of this paper
Replicating Anomalies
Replicating Anomalies
Replicating Anomalies
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: Suggested Citation
Kewei Hou
Ohio State University (OSU) - Department of Finance ( email )
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United States
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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
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