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Long-term industry reversals

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  • Wu, Yuliang
  • Mazouz, Khelifa

Abstract

This study investigates whether, how and why industry performance can drive long-term return reversals. Using data from the UK, we find that firms in losing industries significantly outperform those in winning industries over the subsequent five years. These industry reversals remain strong and persistent after controlling for stock momentum, industry momentum, seasonal effects and traditional risk factors. We find a strong influence of past industry performance on stock return reversals. Our results also show that past industry performance is the driving force behind long-term reversals. Specifically, we find that industry components drive stock reversals, while past stock performance does not explain industry reversals. Further analysis suggests that industry reversals are present in both good and bad states of the economy and are stronger in industries with high valuation uncertainty. This implies that industry reversals are more likely to be a result of mispricing.

Suggested Citation

  • Wu, Yuliang & Mazouz, Khelifa, 2016. "Long-term industry reversals," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 236-250.
    • Handle: RePEc:eee:jbfina:v:68:y:2016:i:c:p:236-250
    DOI: 10.1016/j.jbankfin.2016.03.017
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    More about this item

    Keywords

    Contrarian performance; Industry; Long term;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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