The Cross Section of Expected Returns and its Relation to Past Returns: New Evidence

Mark Grinblatt and Tobias J. Moskowitz

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: This paper parsimoniously characterizes how past returns affect the cross-section of expected returns. Using Fama-MacBeth regressions, it shows that the momentum and reversals associated with past returns over various horizons are strongly affected by a turn-of-the-year seasonal that differs for winter and losers, depending on both the tax environment and the month of the year, and differs by exchange listing. The analysis also uncovers a consistent winners effect – high fractions of positive return months tend to increase expected returns. Out-of-sample evidence suggests that the documented relation between past returns and expected returns cannot entirely be due to data snooping biases.

Date: 1999-01-01
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