 A trend factor: Any economic gains from using information over investment horizons?Yufeng Han, Guofu Zhou and Yingzi Zhu Journal of Financial Economics, 2016, vol. 122, issue 2, 352-375 Abstract: In this paper, we provide a trend factor that captures simultaneously all three stock price trends: the short-, intermediate-, and long-term, by exploiting information in moving average prices of various time lengths whose predictive power is justified by a proposed general equilibrium model. It outperforms substantially the well-known short-term reversal, momentum, and long-term reversal factors, which are based on the three price trends separately, by more than doubling their Sharpe ratios. During the recent financial crisis, the trend factor earns 0.75% per month, while the market loses −2.03% per month, the short-term reversal factor loses −0.82%, the momentum factor loses −3.88%, and the long-term reversal factor barely gains 0.03%. The performance of the trend factor is robust to alternative formations and to a variety of control variables. From an asset pricing perspective, it also performs well in explaining cross-section stock returns. Keywords: Trends; Moving averages; Asymmetric information; Predictability; Momentum; Factor models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:122:y:2016:i:2:p:352-375 DOI: 10.1016/j.jfineco.2016.01.029 Access Statistics for this article Journal of Financial Economics is currently edited by G. William Schwert More articles in Journal of Financial Economics from Elsevier |
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