Working Paper: NBER ID: w28432
Authors: Theis Ingerslev Jensen; Bryan T. Kelly; Lasse Heje Pedersen
Abstract: Several papers argue that financial economics faces a replication crisis because the majority of studies cannot be replicated or are the result of multiple testing of too many factors. We develop and estimate a Bayesian model of factor replication, which leads to different conclusions. The majority of asset pricing factors: (1) can be replicated, (2) can be clustered into 13 themes, the majority of which are significant parts of the tangency portfolio, (3) work out-of-sample in a new large data set covering 93 countries, and (4) have evidence that is strengthened (not weakened) by the large number of observed factors.
Keywords: No keywords provided
JEL Codes: C11; C58; G02; G10; G11; G12; G15; G17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| methods used (C90) | replication outcomes (C59) |
| robustness of factor construction methods (C38) | successful replication (C59) |
| existence of multiple factors (C39) | thematic categorization of those factors (D91) |
| factor themes (C38) | portfolio performance (G11) |
| volume of data (C55) | validity of research findings (C90) |
| factor research (C38) | internal and external validity (C90) |