Style Investing, Comovement and Return Predictability

37 Pages Posted: 17 Mar 2008

See all articles by Sunil Wahal

Sunil Wahal

Arizona State University (ASU) - Finance Department

M. Deniz Yavuz

Purdue University - Krannert School of Management

Date Written: 2008

Abstract

Barberis and Shleifer (2003) argue that style investing generates (a) comovement between individual assets and their styles, and (b) momentum and reversals in both style and asset returns. We find that high comovement winner (loser) portfolios have significantly higher (lower) future returns than low comovement winner (loser) portfolios. Long-horizon reversals are also larger for high comovement portfolios. The magnitude of the improvement in three-factor alphas from traditional momentum strategies (Jegadeesh and Titman, 1993, 2001) is remarkably large, almost 5 percent per year. Our results suggest that style investing plays an important role in the predictability of returns.

Keywords: style investing, comovement, momentum

JEL Classification: G11, G12, G14

Suggested Citation

Wahal, Sunil and Yavuz, M. Deniz, Style Investing, Comovement and Return Predictability (2008). Available at SSRN: https://ssrn.com/abstract=1106721 or http://dx.doi.org/10.2139/ssrn.1106721

Sunil Wahal

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

M. Deniz Yavuz (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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