descriptionPublicationkeyboard_double_arrow_right Article , Other literature type , Preprint 01 Jan 1997 English Publisher:WileyJournal:The Journal of Finance, volume 55, pages 407-427 (issn: 0022-1082, eissn: 1540-6261,

Authors: Jonathan B. Berk; Jonathan B. Berk;

doi: 10.1111/0022-1082.00210 , 10.2139/ssrn.36156

Sorting Out Sorts

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Abstract

In this paper we analyze the theoretical implications of sorting data into groups and then running asset pricing tests within each group. We show that the way this procedure is implemented introduces a bias in favor of rejecting the model under consideration. By simply picking enough groups to sort into, the true asset pricing model can be shown to have no explanatory power within each group.

Related Organizations

National Bureau of Economic Research
United States
University of California, Berkeley
United States
Stanford University
United States

Keywords

jel: jel:C22, jel: jel:G12

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