Lead-Lag Relationships in International Stock Markets Revisited: Are They Exploitable?

Andreas Gruener and Christian Finke

International Journal of Financial Research, 2018, vol. 9, issue 1, 8-30

Abstract: This paper re-examines empirical lead-lag relationships in stock portfolios sorted by size, analyst coverage and institutional ownership across seven major developed markets. We find that lead-lag relationships continue to exist in a majority of countries. A simple trading strategy that exploits the return predictability based on lead-lag relationships yields significant abnormal returns in several markets. However, the abnormal returns quickly decline when transaction costs are introduced and become insignificant for one-way transaction costs of more than 40 basis points. Thus, lead-lag relationships are probably not exploitable in practice and will continue to exist in the future.

Keywords: lead-lag relationships; Granger-causality; transaction costs (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:jfr:ijfr11:v:9:y:2018:i:1:p:8-30

DOI: 10.5430/ijfr.v9n1p8

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