Value versus glamour

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.UnpublishedNon Peer ReviewedBall, Ray, 1978, Anomalies in relationships between securities’ yields and yield-surrogates, Journal of Financial Economics 6, 103-126. Banz, Rolf W., 1981, The relationship between return and market value of common stocks, Journal of Financial Economics 9, 3-18. 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