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The Limits of p-Hacking : A Thought Experiment

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Abstract

Suppose that asset pricing factors are just p-hacked noise. How much p-hacking is required to produce the 300 factors documented by academics? I show that, if 10,000 academics generate 1 factor every minute, it takes 15 million years of p-hacking. This absurd conclusion comes from applying the p-hacking theory to published data. To fit the fat right tail of published t-stats, the p-hacking theory requires that the probability of publishing t-stats

Suggested Citation

  • Andrew Y. Chen, 2019. "The Limits of p-Hacking : A Thought Experiment," Finance and Economics Discussion Series 2019-016, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2019-16
    DOI: 10.17016/FEDS.2019.016
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    References listed on IDEAS

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    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Juhani T Linnainmaa & Michael R Roberts, 2018. "The History of the Cross-Section of Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 31(7), pages 2606-2649.
    3. Martin Lettau & Markus Pelger & Stijn Van Nieuwerburgh, 2020. "Factors That Fit the Time Series and Cross-Section of Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 33(5), pages 2274-2325.
    4. Kozak, Serhiy & Nagel, Stefan & Santosh, Shrihari, 2020. "Shrinking the cross-section," Journal of Financial Economics, Elsevier, vol. 135(2), pages 271-292.
    5. R. David Mclean & Jeffrey Pontiff, 2016. "Does Academic Research Destroy Stock Return Predictability?," Journal of Finance, American Finance Association, vol. 71(1), pages 5-32, February.
    6. Kewei Hou & Chen Xue & Lu Zhang, 2015. "Editor's Choice Digesting Anomalies: An Investment Approach," The Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 650-705.
    7. Andrew Y Chen & Tom Zimmermann & Jeffrey Pontiff, 2020. "Publication Bias and the Cross-Section of Stock Returns," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(2), pages 249-289.
    8. Nicholas C. Barberis, 2018. "Psychology-based Models of Asset Prices and Trading Volume," NBER Working Papers 24723, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Andrew Y. Chen & Tom Zimmermann, 2022. "Open Source Cross-Sectional Asset Pricing," Critical Finance Review, now publishers, vol. 11(2), pages 207-264, May.

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    More about this item

    Keywords

    Stock return anomalies; Multiple testing; p-hacking; Publication bias;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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