Thousands of Alpha Tests

Author:

Giglio Stefano1,Liao Yuan2,Xiu Dacheng3

Affiliation:

1. Yale School of Management, NBER and CEPR

2. Department of Economics, Rutgers University

3. Booth School of Business, University of Chicago

Abstract

Abstract Data snooping is a major concern in empirical asset pricing. We develop a new framework to rigorously perform multiple hypothesis testing in linear asset pricing models, while limiting the occurrence of false positive results typically associated with data snooping. By exploiting a variety of machine learning techniques, our multiple-testing procedure is robust to omitted factors and missing data. We also prove its asymptotic validity when the number of tests is large relative to the sample size, as in many finance applications. To improve the finite sample performance, we also provide a wild-bootstrap procedure for inference and prove its validity in this setting. Finally, we illustrate the empirical relevance in the context of hedge fund performance evaluation.

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics,Finance,Accounting

Reference73 articles.

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