Short-term predictability of equity returns along two style dimensions

Andrei Shynkevich

Journal of Empirical Finance, 2012, vol. 19, issue 5, 675-685

Abstract: This study uses daily return data on 20 portfolios split along two dimensions, growth/value and market size, over the period of four decades and employs over 12,000 trading rules to investigate the short-term predictability of portfolio returns. It shows that, historically, portfolios of small stocks and value stocks have been more suitable for active trading strategies since returns on value portfolios exhibit more predictability than returns on growth portfolios and returns on portfolios of large stocks appear to be less predictive than returns on portfolios of small stocks. The predictive ability of trading rules is all but gone during the 2000s. Popularization of exchange-traded funds and the introduction of quote decimalization on the exchanges are the most likely reasons behind the lack of predictability.

Keywords: Return predictability; Trading rule; Data snooping (search for similar items in EconPapers)
JEL-codes: C63 G14 G17 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:19:y:2012:i:5:p:675-685

DOI: 10.1016/j.jempfin.2012.07.003

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