The History of the Cross Section of Stock Returns

Juhani T. Linnainmaa and Michael Roberts ()

No 22894, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using data spanning the 20th century, we show that most accounting-based return anomalies are spurious. When examined out-of-sample by moving either backward or forward in time, anomalies' average returns decrease, and volatilities and correlations with other anomalies increase. The data-snooping problem is so severe that even the true asset pricing model is expected to be rejected when tested using in-sample data. Our results suggest that asset pricing models should be tested using out-of-sample data or, when not feasible, by whether a model is able to explain half of the in-sample alpha.

JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-fmk, nep-his and nep-ifn
Note: AP
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Citations: View citations in EconPapers (13)

Published as Juhani T Linnainmaa & Michael R Roberts, 2018. "The History of the Cross-Section of Stock Returns," The Review of Financial Studies, vol 31(7), pages 2606-2649.

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