Style Migration and the Cross-Section of Stock Returns

Hsiu-Lang Chen and Russell Wermers ()
Additional contact information
Hsiu-Lang Chen: University of IL, Chicago

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: Stocks experiencing sharp changes in their style characteristics present unique opportunities to examine how investors view style information in making their portfolio allocation decisions. We examine the average returns of such stocks-which we call "style migrants"-and the covariation of the returns of style migrants with their new style cohort stocks to provide new insight into the way investors use equity style information. Our results indicate that investors strongly judge a stock by its style. Specifically, we find that stocks experiencing large levels of variability in their book-to-market and momentum characteristics during the prior three years significantly outperform, during the following year, other stocks with more style stability. In addition, these high style risk stocks covary much more with their new style cohorts than do low style risk stocks that have also moved into the same new style category, consistent with investors overreacting to style shifts of high style risk stocks, while exhibiting a "style memory" effect for low style-risk stocks. In further tests, we find some evidence that high style risk stocks exhibit style return reversals, while low style risk stocks exhibit style return continuations. Overall, our paper provides new evidence about investor behavior by demonstrating that some investors appear to overweight style information when allocating their portfolios, especially for certain high style-risk stocks.

Date: 2010-12
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://fic.wharton.upenn.edu/fic/papers/11/11-13.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://fic.wharton.upenn.edu/fic/papers/11/11-13.pdf [301 Moved Permanently]--> https://wifpr.wharton.upenn.edu/fic/papers/11/11-13.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:11-13

Access Statistics for this paper

More papers in Working Papers from University of Pennsylvania, Wharton School, Weiss Center Contact information at EDIRC.
Bibliographic data for series maintained by ().