What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns?

Mark Grinblatt and Tobias J. Moskowitz

No 8744, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Multihorizon temporal relationships between stock returns are complex due to confounding sources of return premia, microstructure effects, and changes in the relationship over various horizons. We find the relation to be further complicated by the sign and consistency of the past return that also varies, somewhat sensibly, with the season and the tax environment. Accounting for these additional effects using a parsimonious technical trading rule generates surprisingly large abnormal returns, despite controlling for microstructure effects, transaction costs, and data-snooping biases. The documented variation in profits across stock characteristics, season, and tax environment appear inconsistent with existing theory, but may point to future explanations for the relation between past and expected returns.

JEL-codes: G0 G1 (search for similar items in EconPapers)
Date: 2002-01
New Economics Papers: this item is included in nep-fmk
Note: AP
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Citations: View citations in EconPapers (6)

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