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


  • Campbell R. Harvey
  • Yan Liu
  • Heqing Zhu


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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    References listed on IDEAS

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    13. Kaplan, Steven N. & Stein, Jeremy C., 1990. "How risky is the debt in highly leveraged transactions?," Journal of Financial Economics, Elsevier, vol. 27(1), pages 215-245, September.
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    1. 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.
    2. Cantillo, Miguel, 2017. "A Reconsideration of the Equity Premium Puzzle," MPRA Paper 79357, University Library of Munich, Germany.
    3. 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.
    4. 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.
    5. repec:eee:finana:v:52:y:2017:i:c:p:94-103 is not listed on IDEAS
    6. 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.
    7. 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.
    8. Jacobs, Heiko, 2016. "Market maturity and mispricing," Journal of Financial Economics, Elsevier, vol. 122(2), pages 270-287.
    9. Frömmel, Michael & Lampaert, Kevin, 2016. "Does frequency matter for intraday technical trading?," Finance Research Letters, Elsevier, vol. 18(C), pages 177-183.
    10. 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.
    11. repec:eee:empfin:v:44:y:2017:i:c:p:43-65 is not listed on IDEAS
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    13. repec:eee:intfin:v:49:y:2017:i:c:p:1-14 is not listed on IDEAS
    14. Lai, Wan-Ni, 2016. "Do academic investment insights benefit society?," Research in International Business and Finance, Elsevier, vol. 38(C), pages 172-176.
    15. 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.
    16. repec:eee:ecosta:v:5:y:2018:i:c:p:137-147 is not listed on IDEAS
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    19. 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.
    20. repec:spr:reaccs:v:22:y:2017:i:2:d:10.1007_s11142-017-9389-z is not listed on IDEAS
    21. repec:eee:jfinec:v:126:y:2017:i:3:p:471-489 is not listed on IDEAS
    22. repec:eee:jfinec:v:127:y:2018:i:2:p:325-341 is not listed on IDEAS

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