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The long-run reversal in the long run: Insights from two centuries of international equity returns

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  • Zaremba, Adam
  • Kizys, Renatas
  • Raza, Muhammad Wajid

Abstract

We perform the most comprehensive test of long-term reversal in national equity indices ever done. Having examined data from 71 countries for the years 1830 through 2019, we demonstrate a strong reversal pattern: the past long-term return negatively predicts future performance. The phenomenon is not subsumed by other established cross-sectional return patterns, including the value effect. The long-term reversal is robust to many considerations but highly unstable through time. Finally, our findings support the overreaction explanation of this anomaly.

Suggested Citation

  • Zaremba, Adam & Kizys, Renatas & Raza, Muhammad Wajid, 2020. "The long-run reversal in the long run: Insights from two centuries of international equity returns," Journal of Empirical Finance, Elsevier, vol. 55(C), pages 177-199.
  • Handle: RePEc:eee:empfin:v:55:y:2020:i:c:p:177-199
    DOI: 10.1016/j.jempfin.2019.11.007
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    Cited by:

    1. Alex Plastun & Xolani Sibande & Rangan Gupta & Mark E. Wohar, 2020. "Evolution of Price Effects After One-Day of Abnormal Returns in the US Stock Market," Working Papers 202016, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    Long-term reversal; Long-run reversal; Country equity indices; Early security data; Equity anomalies; Asset pricing; Return predictability;

    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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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