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Data-Snooping Biases in Tests of Financial Asset Pricing Models

  • Lo, Andrew W
  • MacKinlay, A Craig

Tests of financial asset pricing models may yield misleading inferences when properties of the data are used to construct the test statistics. In particular, such tests are often based on returns to portfolios of common stock, where portfolios are constructed by sorting on some empirically motivated characteristic of the securities such as market value of equity. Analytical calculations, Monte Carlo simulations, and two empirical examples show that the effects of this type of data snooping can be substantial. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 3 (1990)
Issue (Month): 3 ()
Pages: 431-67

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Handle: RePEc:oup:rfinst:v:3:y:1990:i:3:p:431-67
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  1. Brown, Philip & Kleidon, Allan W. & Marsh, Terry A., 1983. "New evidence on the nature of size-related anomalies in stock prices," Journal of Financial Economics, Elsevier, vol. 12(1), pages 33-56, June.
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