Evidence of Predictable Behavior of Security Returns

Narasimhan Jegadeesh

Journal of Finance, 1990, vol. 45, issue 3, 881-98

Abstract: This paper presents new empirical evidence of predictability of individual stock returns. The negative first-order serial correlation in monthly stock returns is highly significant. Furthermore, significant positive serial correlation is found at longer lags, and the twelve-month serial correlation is particularly strong. Using the observed systematic behavior of stock return, one-step-ahead return forecasts are made and ten portfolios are formed from the forecasts. The difference between the abnormal returns on the extreme decile portfolios over the period 1934-87 is 2.49 percent per month. Copyright 1990 by American Finance Association.

Date: 1990
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