Sorting out sorts

Authors
Citation
Jb. Berk, Sorting out sorts, J FINANCE, 55(1), 2000, pp. 407-427
Citations number
10
Categorie Soggetti
Economics
Journal title
JOURNAL OF FINANCE
ISSN journal
00221082 → ACNP
Volume
55
Issue
1
Year of publication
2000
Pages
407 - 427
Database
ISI
SICI code
0022-1082(200002)55:1<407:SOS>2.0.ZU;2-4
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 reject ing the model under consideration. By simply picking enough groups to sort into, the true asset pricing model can be shown to have no explanatory powe r within each group.