The Limits of P-Hacking: A Thought Experiment
16 Pages Posted: 26 Mar 2019
Date Written: 2019-03-22
Suppose that asset pricing factors are just p-hacked noise. How much p-hacking is required to produce the 300 factors documented by academics? I show that, if 10,000 academics generate 1 factor every minute, it takes 15 million years of p-hacking. This absurd conclusion comes from applying the p-hacking theory to published data. To fit the fat right tail of published t-stats, the p-hacking theory requires that the probability of publishing t-stats < 6.0 is infinitesimal. Thus it takes a ridiculous amount of p-hacking to publish a single t-stat. These results show that p-hacking alone cannot explain the factor zoo.
Keywords: Stock return anomalies, Multiple testing, p-hacking, Publication bias
JEL Classification: G10, G12
Suggested Citation: Suggested Citation