"Are There Sectoral Anomolies Too? An Illustration of the Pitfalls of Multiple Hypothesis Testing"
by Michael Greenstone and Paul Oyer
Review of Quantitative Finance and Accounting, 17, July 2000, 37-55
The recent emphasis on sector-specific investment strategies has led to the emergence of industry-specific calendar anomalies, notably the technology sector "summer swoon." A standard-test implies that these price movements provide arbitrage opportunities. However, this test fails to account for the many tests that may have proceeded the swoon's recovery. We propose the use of the Bonferroni correction to account for this unreported testing. Its application reverses the conclusions about the summer swoon and finds no evidence of calendar-based price patterns in any other sector. We also use the Bonferroni correction to revisit previously documented, market-wide, anomalies. Conclusions about the most widely cited anomalies (e.g., the January effect) are unchanged, but evidence for some other "anomalies" is substantially weakened. Our results emphasize that in evaluating a proposed anomaly, sectoral in nature or otherwise, it is crucial to account for the hypotheses that were likely to have been tested but not presented.