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We assess the profitability of momentum strategies using a stochastic discount factor approach. In unconditional tests, approximately half of the strategies' profitability is explained. In conditional tests we see a further slight decline in profits. We argue that the risk of these strategies...
Persistent link: https://www.econbiz.de/10005578018
This paper proposes a new method of forming basis assets. We use return correlations to sort securities into portfolios and compare the inferences drawn from this set of basis assets with those drawn from other benchmark portfolios. The proposed set of portfolios appears capable of generating...
Persistent link: https://www.econbiz.de/10008469368
In recent years, several researchers have argued that the stock market consistently overreacts to new information, which, in turn, results in price reversals. B. N. Lehmann (1990) and others showed that a contrarian can make substantial profits in the short run by simply buying losers and...
Persistent link: https://www.econbiz.de/10005430017
Persistent link: https://www.econbiz.de/10005376629
Campbell, Hilscher, and Szilagyi (2008) show that firms with a high probability of default have abnormally low average future returns. We show that firms with a high potential for default (death) also tend to have a relatively high probability of extremely large (jackpot) payoffs. Consistent...
Persistent link: https://www.econbiz.de/10010906192
Persistent link: https://www.econbiz.de/10005577946
This article develops and estimates a simple model for monthly expected stock returns that relies on the rapidly decaying structure of shorter-horizon (weekly) expected returns. The most striking aspect of our findings is that the rapid mean reversion in short-horizon expected returns implies...
Persistent link: https://www.econbiz.de/10005578002
We examine whether the price response to bad and good earnings shocks changes as the relative level of the market changes. The study is based on a complete sample of annual earnings announcements during the period 1988 to 1998. The relative level of the market is based on the difference between...
Persistent link: https://www.econbiz.de/10005691853
This article characterizes the stochastic behavior of expected retu rns on common stocks. The authors assume market efficiency and postulate an autoregressive process for conditional expected returns. They use weekly returns of ten size-based portfolios over the 1962-8 5 period and find that (1)...
Persistent link: https://www.econbiz.de/10005728148
We show that there is an asymmetry in the predictability of the volatilities of large versus small firms. Using both univariate and multivariate ARMA-GARCH-M parameterizations, we find that volatility surprises to large market value firms are important to the future dynamics of their own returns...
Persistent link: https://www.econbiz.de/10005743938