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Data-snooping biases in tests of financial asset pricing models

Author

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  • Lo, Andrew W. (Andrew Wen-Chuan)
  • MacKinlay, Archie Craig, 1955-
Abstract
Tests of financial asset pricing models may yield misleading inferences when properties of the data are used to construct the test statistics. In particular, such tests are often based on returns to portfolios of common stock, where portfolios are constructed by sorting on some empirically motivated characteristic of the securities such as market value of equity. Analytical calculations, Monte Carlo simulations, and two empirical examples show that the effects of this type of data snooping can be substantial. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
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Suggested Citation

  • Lo, Andrew W. (Andrew Wen-Chuan) & MacKinlay, Archie Craig, 1955-, 1989. "Data-snooping biases in tests of financial asset pricing models," Working papers 3020-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    • Handle: RePEc:mit:sloanp:2249
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    File URL: http://hdl.handle.net/1721.1/2249
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    Keywords

    HD28 .M414 no.3020-; 89; 1989c;
    All these keywords.

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