Recency bias and the cross-section of international stock returns

Nusret Cakici and Adam Zaremba

Journal of International Financial Markets, Institutions and Money, 2023, vol. 84, issue C

Abstract: Investors often focus on recent information only, underestimating the relevance of data from the distant past. In consequence, the ordering of historical returns reliably predicts future stock performance in the cross-section. Using data from 49 countries, we comprehensively examine this anomaly within international markets. The average return differential between the high and low deciles of global stocks sorted on chronological return ordering equals 0.91 % per month. The effect is distinctly robust among the biggest companies but exhibits substantial international heterogeneity. The mispricing prevails in countries characterized by high individualism and shareholder protection. Furthermore, it is concentrated following down markets and periods of excessive volatility.

Keywords: Chronological return ordering; Recency bias; Behavioral finance; The cross-section of stock returns; ASSET pricing; Return predictability; International markets (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:84:y:2023:i:c:s1042443123000069

DOI: 10.1016/j.intfin.2023.101738

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