Stock Return Autocorrelation is Not Spurious

Robert M. Anderson, Kyong Shik Eom, Sang Buhm Hahn and Jong-Ho Park

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: We find compelling evidence that stock return autocorrelation is not spurious. Specifically, we find that partial price adjustment is an important source, and in some cases the main source, of the autocorrelation. In contrast to previous tests, our tests of partial price adjustment are direct, using disjoint time intervals, separated by a trade, to eliminate the nonsynchronous trading effect. We find compelling evidence of partial price adjustment in several settings, involving both individual stocks and portfolios. We also find evidence for partial price adjustment in an unlikely setting: the incorporation of very public, non-firm-specific information into the price of individual stocks. Several of our tests allow us to estimate lower bounds on the fraction of the autocorrelation that comes from partial price adjustment; in each case, we find the fraction is very substantial.

Keywords: Stock return autocorrelation; nonsynchronous trading; partial price adjustment; market microstructure; intraday return; SPDRs (search for similar items in EconPapers)
Date: 2005-04-02
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Citations: View citations in EconPapers (1)

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