Is that factor just lucky? Australian evidence

Khoa Hoang, Damien Cannavan, Clive Gaunt and Ronghong Huang

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

Abstract: Conventional test statistics do not account for data mining, leading to the identification of asset pricing factors that are the product of luck rather than being true risk factors. We construct a unique set of ninety-one risk factors for the period from January 1992 to December 2017 and test which factors contribute in an economically and statistically significant manner towards improving the cross-sectional performance of asset pricing models. Our results show that the market factor is the only factor in the Australian market that consistently survives the stringent approach to factor selection that takes into account the data-mining issue. Our results hold across individual stocks and portfolios and are robust to block bootstrapping and exclusion of small stocks.

Keywords: Multiple hypothesis testing; Factor models; Data-mining; Bootstrap (search for similar items in EconPapers)
JEL-codes: C15 G11 G12 G17 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x1930304x

DOI: 10.1016/j.pacfin.2019.101191

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