Investment styles and the multiple testing of cross-sectional stock return predictability
Journal
Journal of Financial Markets
Journal Volume
56
Date Issued
2021
Author(s)
Abstract
The scheme of simultaneously testing many profitable strategies may conceal the hazard of data-snooping bias. However, certain portfolio returns are also more likely to exhibit codependency because of their same investment styles. Aiming at the phenomena of stock return anomalies, we consider two multiple testing approaches: one ignores the classification of portfolios and the other utilizes such information. The results based on grouped multiple testing suggest that the implied adjusted critical values for t-statistics may vary across investment styles, and several statistically significant portfolios may be unidentified under the pooled setup. ? 2020 Elsevier B.V.
Subjects
Anomalies
Cross-section of stock returns
Data-snooping bias
Multiple testing
Selective inference
SDGs
Type
journal article