The Power of T-1 Returns
University of Maryland Eastern Shore - School of Business and Technology
July 27, 2014
This study analyzes stock market performance in 70 countries to determine if return in month T-1 is useful for forecasting return in the current month. The analysis of full sample shows that the average return in each of the preceding months is useful for forecasting return in the respective following month across 70 equity markets except April. In the developed stock markets, only the average returns in Feb, Mar, May, Aug, Oct and Nov are usefully for forecasting their respective following months. Across the emerging stock markets, only the average returns in May and June which are not useful for forecasting returns in their respective following months. In the case of frontier stock markets, only returns in Feb, Mar, May, Jun and Jul have predictive power over returns in the following respective months. Finally, returns in Feb and Mar have a powerful predicting power regardless whether the stock markets are developed, emerging or frontier ones.
Keywords: market efficiency, stock market performance, forecasting
JEL Classification: G10, G11, G15working papers series
Date posted: July 29, 2014
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