Most Claimed Statistical Findings in Cross-Sectional Return Predictability Are Likely True

Abstract

Harvey, Liu, and Zhu (2016) “argue that most claimed research findings in financial economics are likely false.” Surprisingly, their false discovery rate (FDR) estimates suggest most are true. I revisit their results by developing non- and semi-parametric FDR estimators that account for publication bias and empirical correlations. These estimators provide simple closed-form expressions and reliably produce an upper bound on the FDR in simulations that cluster-bootstrap from empirical predictor returns. Applying these estimators to the Chen-Zimmermann dataset of 205 predictors, I find that most claimed statistical findings in the cross-sectional predictability literature are likely true.