The Cross-Autocorrelation of Size-Based Portfolio Returns is Not an Artifact of Portfolio Autocorrelation
Posted: 14 Sep 1998
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: Suggested Citation