Recency Bias and the Cross-Section of International Stock Returns

Investors often focus their attention on recent information only, underestimating the rele-vance of information from the distant past. In consequence, the ordering of historical re-turns robustly predicts future stock performance in the cross-section. Using data from 49 countries, we comprehensively examine this anomaly within international markets. A value-weighted spread portfolio of global stocks that is formed on chronological return ordering earns 0.91% per month. The effect is distinctly robust and prevails among the biggest and most liquid companies. The mispricing is particularly strong in countries that are charac-terized by high individualism and shareholder protection. Furthermore, the return predict-ability is concentrated following down markets and periods of excessive volatility