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What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns?

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Listed author(s):
  • Tobias J. Moskowitz

    ()

    (Graduate School of Business)

  • Mark Grinblatt

    ()

    (Finance Area)

Abstract

Multihorizon temporal relationships between stock returns are complex due to confounding sources of return premia, microstructure effects, and changes in the relationship over various horizons. We find the relation to be further complicated by the sign and consistency of the past return that also varies, somewhat sensibly, with the season and the tax environment. Accounting for these additional effects using a parsimonious technical trading rule generates surprisingly large abnormal returns, despite controlling for microstructure effects, transaction costs, and date-snooping biases. The documented variation in profits across stock characteristics, season, and tax environment appears inconsistent with existing theory, but may point to future explanations for the relation between past and expected returns.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm259.

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Date of creation: 25 Jan 2002
Handle: RePEc:ysm:somwrk:ysm259
Contact details of provider: Web page: http://icf.som.yale.edu/

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Find related papers by JEL classification:
  • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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Cited by:

  1. Grinblatt, Mark & Keloharju, Matti, 2004. "Tax-loss trading and wash sales," Journal of Financial Economics, Elsevier, vol. 71(1), pages 51-76, January.
  2. Guo, Hui, 2006. "Time-varying risk premia and the cross section of stock returns," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 2087-2107, July.
  3. Bing NMI1 Han & Mark Grinblatt, 2001. "The Disposition Effect and Momentum," Yale School of Management Working Papers ysm239, Yale School of Management.

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