Is There a Replication Crisis in Finance?

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See all articles by Theis Ingerslev Jensen

Theis Ingerslev Jensen

Copenhagen Business School

Bryan T. Kelly

Yale SOM; AQR Capital Management, LLC; National Bureau of Economic Research (NBER)

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

Date Written: January 28, 2021

Abstract

Several papers argue that financial economics faces a replication crisis because the majority of studies cannot be replicated or are the result of multiple testing of too many factors. We develop and estimate a Bayesian model of factor replication, which leads to different conclusions. The majority of asset pricing factors: (1) can be replicated, (2) can be clustered into 13 themes, the majority of which are significant parts of the tangency portfolio, (3) work out of sample in a new large data set covering 93 countries, and (4) have evidence that is strengthened (not weakened) by the large number of observed factors.

Keywords: asset pricing, factors, data mining, replication, multiple testing, external validity, empirical Bayes, Bayesian statistics

JEL Classification: G10, G11, G12

Suggested Citation

Jensen, Theis Ingerslev and Kelly, Bryan T. and Pedersen, Lasse Heje, Is There a Replication Crisis in Finance? (January 28, 2021). Available at SSRN: https://ssrn.com/abstract=

Theis Ingerslev Jensen

Copenhagen Business School ( email )

Solbjerg Plads 3, SOL/A4.17
Copenhagen, Frederiksberg 2000

Bryan T. Kelly (Contact Author)

Yale SOM ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lasse Heje Pedersen

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

New York University (NYU) ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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