Working Paper: NBER ID: w23394
Authors: Kewei Hou; Chen Xue; Lu Zhang
Abstract: The anomalies literature is infested with widespread p-hacking. We replicate the entire anomalies literature in finance and accounting by compiling a largest-to-date data library that contains 447 anomaly variables. With microcaps alleviated via New York Stock Exchange breakpoints and value-weighted returns, 286 anomalies (64%) including 95 out of 102 liquidity variables (93%) are insignificant at the conventional 5% level. Imposing the cutoff t-value of three raises the number of insignificance to 380 (85%). Even for the 161 significant anomalies, their magnitudes are often much lower than originally reported. Out of the 161, the q-factor model leaves 115 alphas insignificant (150 with t < 3). In all, capital markets are more efficient than previously recognized.
Keywords: anomalies; replication; p-hacking; q-factor model
JEL Codes: G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 447 anomalies (Y10) | 286 insignificant anomalies (C20) |
| 447 anomalies (Y10) | 380 insignificant anomalies (Y90) |
| 102 liquidity variables (C39) | 95 insignificant liquidity variables (C29) |
| q-factor model (C38) | 161 significant anomalies (C20) |
| 161 significant anomalies (C20) | 46 significant alphas (C69) |
| significant anomalies (Y90) | lower magnitudes than previously reported (C59) |
| anomalies literature (Y30) | susceptibility to p-hacking (C90) |