Macroeconomic Variables and Seasonal Mean Reversion in Stock Returns
AbstractIn this paper I investigate whether seasonal mean reversion in stock portfolio returns is related to common macroeconomic risk factors. I decompose excess returns into explained and unexplained returns using a multifactor pricing model. The explained excess returns exhibit January mean reversion; the unexplained excess returns do not. The mean reversion can be attributed to the components of return related to unexpected inflation, bond default premium and market risk. The results do not depend on the time-series properties of the portfolio betas. Bond default premia and excess market returns are mean reverting in January.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 19 (1996)
Issue (Month): 3 (Fall)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0270-2592
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- Ying Huang & Chia-Hui Tsai & Carl R. Chen, 2007. "Expected P/E, Residual P/E, and Stock Return Reversal: Time-Varying Fundamentals or Investor Overreaction?," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 6(1), pages 11-28, April.
- Gropp, Jeffrey, 2004. "Mean reversion of industry stock returns in the U.S., 1926-1998," Journal of Empirical Finance, Elsevier, vol. 11(4), pages 537-551, September.
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