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Editor's Choice … and the Cross-Section of Expected Returns

Author

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  • Campbell R. Harvey
  • Yan Liu
  • Heqing Zhu

Abstract

Hundreds of papers and factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make sense to use the usual criteria for establishing significance. Which hurdle should be used for current research? Our paper introduces a new multiple testing framework and provides historical cutoffs from the first empirical tests in 1967 to today. A new factor needs to clear a much higher hurdle, with a t-statistic greater than 3.0. We argue that most claimed research findings in financial economics are likely false. Received October 22, 2014; accepted June 15, 2015 by Editor Andrew Karolyi.

Suggested Citation

  • Campbell R. Harvey & Yan Liu & Heqing Zhu, 2016. "Editor's Choice … and the Cross-Section of Expected Returns," Review of Financial Studies, Society for Financial Studies, vol. 29(1), pages 5-68.
  • Handle: RePEc:oup:rfinst:v:29:y:2016:i:1:p:5-68.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhv059
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    Cited by:

    1. repec:eee:quaeco:v:68:y:2018:i:c:p:211-225 is not listed on IDEAS
    2. Guanhao Feng & Jingyu He & Nicholas G. Polson, 2018. "Deep Learning for Predicting Asset Returns," Papers 1804.09314, arXiv.org, revised Apr 2018.
    3. Pierre Bajgrowicz & Olivier Scaillet & Adrien Treccani, 2016. "Jumps in High-Frequency Data: Spurious Detections, Dynamics, and News," Management Science, INFORMS, vol. 62(8), pages 2198-2217, August.
    4. Cantillo, Miguel, 2017. "A Reconsideration of the Equity Premium Puzzle," MPRA Paper 79357, University Library of Munich, Germany.
    5. repec:eee:econom:v:201:y:2017:i:1:p:19-42 is not listed on IDEAS
    6. Suresh Nallareddy & Maria Ogneva, 0. "Accrual quality, skill, and the cross-section of mutual fund returns," Review of Accounting Studies, Springer, vol. 0, pages 1-40.
    7. Jacobs, Heiko, 2016. "Market maturity and mispricing," Journal of Financial Economics, Elsevier, vol. 122(2), pages 270-287.
    8. Lai, Wan-Ni, 2016. "Do academic investment insights benefit society?," Research in International Business and Finance, Elsevier, vol. 38(C), pages 172-176.
    9. Marie Briere & Ariane Szafarz, 2017. "Factor Investing: The Rocky Road from Long-Only to Long-Short," Working Papers CEB 17-013, ULB -- Universite Libre de Bruxelles.
    10. Han, Yufeng & Zhou, Guofu & Zhu, Yingzi, 2016. "A trend factor: Any economic gains from using information over investment horizons?," Journal of Financial Economics, Elsevier, vol. 122(2), pages 352-375.
    11. repec:eee:finana:v:56:y:2018:i:c:p:264-280 is not listed on IDEAS
    12. Frömmel, Michael & Lampaert, Kevin, 2016. "Does frequency matter for intraday technical trading?," Finance Research Letters, Elsevier, vol. 18(C), pages 177-183.
    13. Hsu, Po-Hsuan & Taylor, Mark P. & Wang, Zigan, 2016. "Technical trading: Is it still beating the foreign exchange market?," Journal of International Economics, Elsevier, vol. 102(C), pages 188-208.
    14. repec:eee:empfin:v:44:y:2017:i:c:p:43-65 is not listed on IDEAS
    15. repec:eee:ememar:v:31:y:2017:i:c:p:1-15 is not listed on IDEAS
    16. repec:spr:reaccs:v:22:y:2017:i:2:d:10.1007_s11142-017-9389-z is not listed on IDEAS
    17. Kim, Jae H., 2017. "Stock returns and investors' mood: Good day sunshine or spurious correlation?," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 94-103.
    18. repec:eee:ecosta:v:5:y:2018:i:c:p:137-147 is not listed on IDEAS
    19. repec:eee:jfinec:v:126:y:2017:i:3:p:471-489 is not listed on IDEAS
    20. Anton Astakhov & Tomas Havranek & Jiri Novak, 2017. "Firm Size and Stock Returns: A Meta-Analysis," Working Papers IES 2017/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2017.
    21. repec:eee:intfin:v:49:y:2017:i:c:p:1-14 is not listed on IDEAS
    22. repec:eee:ecmode:v:64:y:2017:i:c:p:97-104 is not listed on IDEAS
    23. repec:eee:jfinec:v:127:y:2018:i:2:p:325-341 is not listed on IDEAS
    24. repec:eee:jfinec:v:128:y:2018:i:1:p:125-147 is not listed on IDEAS
    25. Ashraf, Dawood & Felixson, Karl & Khawaja, Mohsin & Hussain, Syed Mujahid, 2017. "Do constraints on financial and operating leverage affect the performance of Islamic equity portfolios?," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 171-182.

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