The Intricate Relation between Return, Market Value and Past Performance of Common Stocks in the United States 1926-2006
Posted: 19 Sep 2011
Date Written: September 19, 2011
We study the interrelation between the size and winner-loser effects in U.S. stock returns. We use data for the period 1926-2006. The two effects are robust --- also in data gathered after 1980. Small-firm loser portfolios perform particularly well in January but poorly during the 4th quarter of the year. Large-firm winner portfolios do the exact opposite. Surprisingly, small-firm loser portfolios earn high (time-series average) mean returns but low (time-series average) median returns. This observation may be of great consequence for the risk and return characteristics of small-cap and value-based investment strategies.
Keywords: Empirical asset pricing, risk premia, anomalies, size, seasonality, overreaction, behavioral finance
JEL Classification: G12
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