Evidence of Predictable Behavior of Security Returns

Evidence of Predictable Behavior of Security Returns ABSTRACT This paper presents new empirical evidence of predictability of individual stock returns. The negative first‐order serial correlation in monthly stock returns is highly significant. Furthermore, significant positive serial correlation is found at longer lags, and the twelve‐month serial correlation is particularly strong. Using the observed systematic behavior of stock returns, one‐step‐ahead return forecasts are made and ten portfolios are formed from the forecasts. The difference between the abnormal returns on the extreme decile portfolios over the period 1934–1987 is 2.49 percent per month. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Evidence of Predictable Behavior of Security Returns

The Journal of Finance, Volume 45 (3) – Jul 1, 1990

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Publisher
Wiley
Copyright
1990 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1990.tb05110.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper presents new empirical evidence of predictability of individual stock returns. The negative first‐order serial correlation in monthly stock returns is highly significant. Furthermore, significant positive serial correlation is found at longer lags, and the twelve‐month serial correlation is particularly strong. Using the observed systematic behavior of stock returns, one‐step‐ahead return forecasts are made and ten portfolios are formed from the forecasts. The difference between the abnormal returns on the extreme decile portfolios over the period 1934–1987 is 2.49 percent per month.

Journal

The Journal of FinanceWiley

Published: Jul 1, 1990

References

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