The Cross-Autocorrelation of Size-Based Portfolio Returns is Not an Artifact of Portfolio Autocorrelation

Posted: 14 Sep 1998

See all articles by Terry Richardson

Terry Richardson

Bowling Green State University - Department of Finance

David R. Peterson

Florida State University - Department of Finance

Abstract

Prior studies find evidence of asymmetric size-based portfolio return cross-autocorrelations where lagged large-firm returns lead current small-firm returns. However, Boudoukh, Richardson, and Whitelaw (1994) question whether this economic relationship is independent of the impact of portfolio return autocorrelation. We formally test for this independence using size-based portfolios of New York and American Stock Exchange securities and, separately, portfolios of NASDAQ securities. Results from Granger (1969) causality regressions indicate that, across all markets, lagged large-firm returns predict current small-firm returns, even after controlling for autocorrelation in small-firm returns. These cross-autocorrelation patterns are stronger for NASDAQ securities.

JEL Classification: G12, G14

Suggested Citation

Richardson, Terry L. and Peterson, David R., The Cross-Autocorrelation of Size-Based Portfolio Returns is Not an Artifact of Portfolio Autocorrelation. Journal of Financial Research, Available at SSRN: https://ssrn.com/abstract=127108

Terry L. Richardson

Bowling Green State University - Department of Finance ( email )

Business Administration 201
Bowling Green, OH 43403
United States
419-372-2520 (Phone)
419-372-2875 (Fax)

David R. Peterson (Contact Author)

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
850-644-8200 (Phone)
850-644-4225 (Fax)

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