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Stock Return Cross-Autocorrelations and Market Conditions in Japan

Author

Listed:
  • Allaudeen Hameed

    (National University of Singapore)

  • Yuanto Kusnadi

    (Hong Kong University of Science and Technology)

Abstract

We show that changes in market conditions significantly affect cross-autocorrelations and speed of adjustment in weekly stock returns. We find significant positive cross-autocorrelations between weekly returns on a portfolio of small firms and lagged large-firm portfolio returns only when the lagged aggregate market has experienced a decline in value. These positive-return cross-autocorrelations are also associated with lower abnormal portfolio trading volume and greater delays in the adjustment of individual stock prices to (negative) market-wide information, particularly for small firms. The effect of lagged market states cannot be explained by market microstructure biases such as nonsynchronous trading or thin trading.

Suggested Citation

  • Allaudeen Hameed & Yuanto Kusnadi, 2006. "Stock Return Cross-Autocorrelations and Market Conditions in Japan," The Journal of Business, University of Chicago Press, vol. 79(6), pages 3029-3056, November.
    • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:6:p:3029-3056
    DOI: 10.1086/508007
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    Cited by:

    1. Kim, Jae H. & Shamsuddin, Abul & Lim, Kian-Ping, 2011. "Stock return predictability and the adaptive markets hypothesis: Evidence from century-long U.S. data," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 868-879.
    2. Chi Dong & Hooi Hooi Lean & Zamri Ahmad & Wing-Keung Wong, 2019. "The Impact of Market Condition and Policy Change on the Sustainability of Intra-Industry Information Diffusion in China," Sustainability, MDPI, vol. 11(4), pages 1-20, February.
    3. Qamar Ishtiaq & Fahad Abdullah, 2015. "Ownership Concentration and Cross-Autocorrelation in Portfolio Returns," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 7(2), pages 85-104, October.

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