Alpha Momentum and Alpha Reversal in Country and Industry Equity Indexes

Do past alphas predict future country and industry returns? Examination of equity indexes from 51 stock markets between 1973 and 2018 allows us to demonstrate new return patterns in the cross-section of country and industry returns. Past short-term (long-term) alphas positively (negatively) predict future returns. These phenomena can be translated into effective international equity allocation strategies, producing economically and statistically significant raw and risk-adjusted returns. The profitability is robust to many considerations, including alternative alpha models, the effect of trading costs, different holding periods, or subsample and subperiod analyses. Also, the alpha momentum and reversal subsume their return-based counterparts. Finally, the alpha-based patterns are particularly pronounced following bull markets and across the markets characterized by high arbitrage constraints, supporting the behavioral explanation of the anomalies