Looking Under the Hood of Data-Mining

44 Pages Posted: 22 Nov 2022 Last revised: 24 Sep 2023

Date Written: September 13, 2023

Abstract

This paper re-evaluates academic research on 92 cross-sectional stock return predictors. Researchers studying return predictability must make decisions about portfolio construction; for example, whether to rebalance annually or monthly. In sample, the returns of portfolios constructed with the precise decisions made in the predictors’ papers are 0.23% per month larger than those of portfolios constructed with a random combination of decisions made in the literature. Out of sample, more than half of this difference disappears. Predictors published in top-ranked journals show a pronounced effect. The results are consistent with decision mining that produces biased return estimates.

Keywords: Stock Return Predictability, Anomalies, Research Decisions, Statistical Biases, Portfolio Construction, Decision-Mining

JEL Classification: G11, G12, G14, G00, C12, C18, C18, C1, C2, B4

Suggested Citation

Hasler, Mathias, Looking Under the Hood of Data-Mining (September 13, 2023). Available at SSRN: https://ssrn.com/abstract=4279944 or http://dx.doi.org/10.2139/ssrn.4279944

Mathias Hasler (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

HOME PAGE: http://www.mathiashasler.com

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