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An Empirical Bayes Approach to Controlling the False Discovery Exceedance

Author

Listed:
  • Pallavi Basu
  • Luella Fu
  • Alessio Saretto
  • Wenguang Sun

Abstract

In large-scale multiple hypothesis testing problems, the false discovery exceedance (FDX) provides a desirable alternative to the widely used false discovery rate (FDR) when the false discovery proportion (FDP) is highly variable. We develop an empirical Bayes approach to control the FDX. We show that, for independent hypotheses from a two-group model and dependent hypotheses from a Gaussian model fulfilling the exchangeability condition, an oracle decision rule based on ranking and thresholding the local false discovery rate (lfdr) is optimal in the sense that the power is maximized subject to the FDX constraint. We propose a data-driven FDX procedure that uses carefully designed computational shortcuts to emulate the oracle rule. We investigate the empirical performance of the proposed method using both simulated and real data and study the merits of FDX control through an application for identifying abnormal stock trading strategies.

Suggested Citation

  • Pallavi Basu & Luella Fu & Alessio Saretto & Wenguang Sun, 2024. "An Empirical Bayes Approach to Controlling the False Discovery Exceedance," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 42(3), pages 1041-1052, July.
    • Handle: RePEc:taf:jnlbes:v:42:y:2024:i:3:p:1041-1052
    DOI: 10.1080/07350015.2023.2277857
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