Weighting methods in asset pricing tests can lead to misleading results.
The way we test asset pricing models can give misleading results if we don't use the right weighting. By adjusting how we weigh certain factors, we can make the model fit the data better than it should. This can happen with both strong and weak factors, and with any sample size or assets we test. We figured out why this happens, tested it with simulations, and found that it's a real issue in practice.