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Investment styles and the multiple testing of cross-sectional stock return predictability

Kendro Vincent, Yu-Chin Hsu and Hsiou-Wei Lin

Journal of Financial Markets, 2021, vol. 56, issue C

Abstract: The scheme of simultaneously testing many profitable strategies may conceal the hazard of data-snooping bias. However, certain portfolio returns are also more likely to exhibit codependency because of their same investment styles. Aiming at the phenomena of stock return anomalies, we consider two multiple testing approaches: one ignores the classification of portfolios and the other utilizes such information. The results based on grouped multiple testing suggest that the implied adjusted critical values for t-statistics may vary across investment styles, and several statistically significant portfolios may be unidentified under the pooled setup.

Keywords: Anomalies; Cross-section of stock returns; Data-snooping bias; Multiple testing; Selective inference (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:56:y:2021:i:c:s1386418120300677

DOI: 10.1016/j.finmar.2020.100598

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Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

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