Andrew Chen and Alejandro Lopez-Lira challenge the foundation of asset pricing theory in their recent paper, questioning the reasons behind the excess returns generated by investment factors. Their study compares anomalies with behavioral and risk-based explanations to data-mined anomalies, finding no difference in out-of-sample returns. This has significant implications for academic research and real-world investment strategies. The podcast delves into their findings, exploring the concepts of anomalies, factors, data mining, and the role of peer-reviewed theory in asset pricing.
