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FILTER RULE TESTS OF THE ECONOMIC SIGNIFICANCE OF SERIAL DEPENDENCIES IN DAILY STOCK RETURNS

FILTER RULE TESTS OF THE ECONOMIC SIGNIFICANCE OF SERIAL DEPENDENCIES IN DAILY STOCK RETURNS In this paper we examine the ability of filter rules to predict variation in expected daily returns for a sample of 120 Dow Jones and S&P 100 stocks from 1963 through 1989. Equally weighted portfolios of filter‐rule‐traded stocks consistently outperform a buy‐and‐hold portfolio of the same stocks before accounting for transaction costs. The difference in returns between filter rule and buy‐and‐hold portfolios is eliminated by one‐way transaction costs of 12 basis points. The economic significance of daily stock return autocorrelations is estimated. A marginal 1 percent increase in a first‐order autocorrelation increases filter rule returns by an estimated 3.84 percent. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Financial Research Wiley

FILTER RULE TESTS OF THE ECONOMIC SIGNIFICANCE OF SERIAL DEPENDENCIES IN DAILY STOCK RETURNS

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References (9)

Publisher
Wiley
Copyright
© The Southern Finance Association and the Southwestern Finance Association
ISSN
0270-2592
eISSN
1475-6803
DOI
10.1111/j.1475-6803.1992.tb00119.x
Publisher site
See Article on Publisher Site

Abstract

In this paper we examine the ability of filter rules to predict variation in expected daily returns for a sample of 120 Dow Jones and S&P 100 stocks from 1963 through 1989. Equally weighted portfolios of filter‐rule‐traded stocks consistently outperform a buy‐and‐hold portfolio of the same stocks before accounting for transaction costs. The difference in returns between filter rule and buy‐and‐hold portfolios is eliminated by one‐way transaction costs of 12 basis points. The economic significance of daily stock return autocorrelations is estimated. A marginal 1 percent increase in a first‐order autocorrelation increases filter rule returns by an estimated 3.84 percent.

Journal

The Journal of Financial Research – Wiley

Published: Dec 1, 1992

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