Value versus Glamour

Authors

  • Jennifer Conrad,

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    • Conrad is at Kennan-Flagler Business School, Cooper is at Krannert Graduate School of Management, and Kaul is from University of Michigan Business School. We appreciate the comments and suggestions made by Joshua Coval, Keith Crocker, Kenneth French, Ravi Jagannathan, Nejat Seyhun, an anonymous referee and Rick Green (the editor), and seminar participants at the University of Michigan and by our discussant, Tobias Moskowitz, and other participants at the Western Finance Association Meetings, 1999. We thank Patti Lamparter for her help with preparing this document.
  • Michael Cooper,

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    • Conrad is at Kennan-Flagler Business School, Cooper is at Krannert Graduate School of Management, and Kaul is from University of Michigan Business School. We appreciate the comments and suggestions made by Joshua Coval, Keith Crocker, Kenneth French, Ravi Jagannathan, Nejat Seyhun, an anonymous referee and Rick Green (the editor), and seminar participants at the University of Michigan and by our discussant, Tobias Moskowitz, and other participants at the Western Finance Association Meetings, 1999. We thank Patti Lamparter for her help with preparing this document.
  • Gautam Kaul

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    • Conrad is at Kennan-Flagler Business School, Cooper is at Krannert Graduate School of Management, and Kaul is from University of Michigan Business School. We appreciate the comments and suggestions made by Joshua Coval, Keith Crocker, Kenneth French, Ravi Jagannathan, Nejat Seyhun, an anonymous referee and Rick Green (the editor), and seminar participants at the University of Michigan and by our discussant, Tobias Moskowitz, and other participants at the Western Finance Association Meetings, 1999. We thank Patti Lamparter for her help with preparing this document.

Abstract

The fragility of the CAPM has led to a resurgence of research that frequently uses trading strategies based on sorting procedures to uncover relations between firm characteristics (such as “value” or “glamour”) and equity returns. We examine the propensity of these strategies to generate statistically and economically significant profits due to our familiarity with the data. Under plausible assumptions, data snooping can account for up to 50 percent of the in-sample relations between firm characteristics and returns uncovered using single (one-way) sorts. The biases can be much larger if we simultaneously condition returns on two (or more) characteristics.

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