Real-Time Profitability of Published Anomalies: An Out-of-Sample Test
Posted: 4 Feb 2008 Last revised: 27 Mar 2017
Date Written: February 11, 2008
Previous studies show mixed results about the out-of-sample performance of various asset-pricing anomalies. To remove data-snooping bias, this paper simulates a real-time trader who chooses among all asset-pricing anomalies published prior to that time using only non-forward-looking filters. I find that a trader can outperform the market by recursively picking the best past performer among published anomalies. The excess return tends to be highest when the trader looks at past performances between two years and five years and when the trader considers more anomalies. Relying only on the then-available anomaly literature and historical data, the overall result shows a possible way to beat the market in real time.
Keywords: Data-snooping Bias, Asset-pricing Anomalies, Out-of-sample Test, Published Anomalies
JEL Classification: G11, G14, D83
Suggested Citation: Suggested Citation