Non-standard Errors in Portfolio Sorts

Description

We systematically study the variation in returns induced by varying 14 methodological decisions in portfolio sorts. These non-standard errors range between 0.14
and 0.39 percent per month and are larger than standard errors. However, for most sorting variables, mean return differentials and alphas are pervasively positive, statistically
significant, and increase monotonically. Decisions such as excluding firms with negative earnings or the information time lag have an impact comparable to
size-related ones. Non-standard errors are countercyclical, raising concerns about non-classical measurement error in predictive regressions. Using our publicly available
code to report distributions of estimated premia provides an easy remedy.

Period	29 Jun 2023
Event title	32nd European Financial Management Association
Event type	Conference
Location	Cardiff, United KingdomShow on map