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A researcher has investigated the returns over the last five years to a long-short strategy based on mean reversion in equity returns volatility. His hypothesis test led to rejection of the hypothesis that abnormal (risk-adjusted) returns to the strategy over the period were less than or equal to zero at the 1% level of significance. He would most appropriately decide that:

A while the abnormal returns are highly significant statistically, they may not be economically meaningful.

There are many reasons that a statistically significant result may not be economically significant (meaningful). Besides transactions costs, we must consider the risk of the strategy as well. For example, although the mean abnormal return to the strategy over the 5-year sample period is greater than transactions costs, abnormal returns for various sub-periods may be highly variable. In this case the risk of the strategy return from month to month or quarter to quarter may be too great to make employing the strategy in client accounts economically attractive

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