Estimating The Anomaly Base Rate

Working Paper No. 26493 The academic literature literally contains hundreds of variables that seem to predict the cross-section of expected returns. This so-called "anomaly zoo" has caused many to question whether researchers are using the right tests of statistical significance. But, here...

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Bibliographic Details
Published in:NBER Working Paper Series 2019-11, p.26493
Format: Article
Language:English
Subjects:
Economic theory
Researchers
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Summary:Working Paper No. 26493 The academic literature literally contains hundreds of variables that seem to predict the cross-section of expected returns. This so-called "anomaly zoo" has caused many to question whether researchers are using the right tests of statistical significance. But, here's the thing: even if researchers use the right tests, they will still draw the wrong conclusions from their econometric analyses if they start out with the wrong priors---i.e., if they start out with incorrect beliefs about the ex ante probability of encountering a tradable anomaly.
ISSN:0898-2937
DOI:10.3386/w26493