Does Peer-Reviewed Research Help Predict Stock Returns?
55 Pages Posted: 28 Dec 2022 Last revised: 5 Feb 2024
Date Written: October 27, 2023
Abstract
Mining 29,000 accounting ratios for t-statistics over 2.0 leads to cross-sectional return predictability similar to the peer review process. For both methods, about 50% of predictability remains after the original sample periods. Predictors supported by peer-reviewed risk explanations or equilibrium models underperform other predictors post-sample, suggesting peer review systematically mislabels mispricing as risk, though only 20% of predictors are labelled as risk. Data mining generates other features of peer review including the rise in returns as original sample periods end and the speed of post-sample decay. It also uncovers themes like investment, issuance, and accruals-decades before they are published.
Keywords: Cross-Section of Returns,Return Predictability, Machine Learning, Big Data
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