The Cross Section of Expected Returns and its Relation to Past Returns: New Evidence
42 Pages Posted: 20 Oct 1999
Date Written: October 1999
This paper parsimoniously characterizes how past returns affect the cross-section of expected returns. Using Fama-MacBeth regressions, it shows that the momentum and reversals associated with past returns over various horizons are strongly affected by a turn-of-the-year seasonal that differs for winners and losers, depending on both the tax environment and the month of the year, and differs by exchange listing. The analysis also uncovers a consistent winners effect - high fractions of positive return months tend to increase expected returns. Out-of-sample evidence suggests that the documented relation between past returns and expected returns cannot entirely be due to data snooping biases.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation