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Common Patterns of Predictability in the Cross-Section of International Stock Returns

35 Pages Posted: 20 Mar 2008  

Steven L. Heston

University of Maryland - Department of Finance

Ronnie Sadka

Boston College - Carroll School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 10, 2007

Abstract

This paper studies the performance of international stock strategies based on historical returns. Stocks that outperform the local market in a particular month continue to outperform the local market in futures years in that same calendar month. This effect lasts for 10 years and in addition to the U.S., the same pattern appears in Canada, twelve European countries, and most notably in Japan. This return pattern is independent of country, currency, and market capitalization. The resulting strategies are not highly correlated across countries. This indicates they may not reflect return premiums for pervasive international risk. Instead this common season structure in internaional stocks suggests countries share similar segmented return mechanisms.

Keywords: International Stock Returns, Market Integration, Behavioral Finance

JEL Classification: G15, F36

Suggested Citation

Heston, Steven L. and Sadka, Ronnie, Common Patterns of Predictability in the Cross-Section of International Stock Returns (July 10, 2007). Available at SSRN: https://ssrn.com/abstract=1108452 or http://dx.doi.org/10.2139/ssrn.1108452

Steven L. Heston

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

Ronnie Sadka (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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