What exactly is the article about? Previous research assumed there were short time windows in which equity returns were surprisingly predictable. Such “pockets of predictability” would mean that investors could predict the market unusually reliably at certain moments. An international team led by Prof. Dr. Thorsten Poddig and Tobias Neumaier from the University of Bremen and Christian Fieberg from the Bremen City University of Applied Sciences (HSB) and Concordia University (Canada), as well as Nusret Cakici (New York) and Adam Zaremba (Montpellier) have now shown in a replication study that a central methodic error in the original research led to the impressive results. This made the forecasts look much better than they actually were.

When the authors applied the method correctly, most of the alleged predictable patterns disappeared. The identified “pockets” were hardly stable and were far too unreliable to use for practical investment decisions. Replication studies are repetitions of a scientific study to verify the results of the original study and test its validity.

“Replications create transparency and improve scientific quality”

“Replication studies like these play a central role for science and society,” explains Prof. Dr. Christian Fieberg. “They ensure that research results not only work on paper, but also hold up when other teams independently reproduce their analyses.” Particularly in the economic and social sciences, where research results often influence political decisions or investments of billions, this control is indispensable. “Replications create transparency, improve scientific quality, and prevent questionable or coincidental results from being adopted without question.”

About the Journal of Finance

The Journal of Finance is the gold standard in this field. It is one of the top 10 science journals of all disciplines worldwide, among titles such as Nature. Several articles published there were later awarded the Nobel Prize in Economics.