Revisiting the price effect in US stocks

Paul Geertsema and Helen Lu

Finance Research Letters, 2019, vol. 30, issue C, 139-144

Abstract: Nominal price does not predict average stock returns in the cross-section of US stocks using the NYSE break-pointed, value-weighted portfolio formation approach adopted in the recent asset-pricing literature. The evidence in support of return predictability is largely constrained to small stocks, with a “low price effect” more prevalent up to the 1970’s and a “high price effect” more prevalent from 1980 onwards. Among the six asset-pricing models tested in our study, only the Fama–French 3-factor model consistently yields positive alphas for trading strategies based on nominal stock prices.

Keywords: Return predictability; Price effect; Benchmark models (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:30:y:2019:i:c:p:139-144

DOI: 10.1016/j.frl.2019.03.017

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