Profitable Predictability in the Cross Section of Stock Returns

54 Pages Posted: 18 Nov 1999

See all articles by J. Douglas Hanna

J. Douglas Hanna

Southern Methodist University (SMU) - Accounting Department

Mark Ready

University of Wisconsin Madison

Abstract

Haugen and Baker (1996) report that a long-short stock selection strategy based on more than 50 measures of accounting information and past return behavior would have generated excess returns of approximately 3% per month. We find that the Haugen and Baker strategies do not provide attractive returns after transaction costs if an investor already has access to strategy portfolios based on book-to-market and momentum. We also provide an extensive analysis of transaction costs over a long sample and we report results of independent interest to researchers in market microstructure.

Keywords: transaction costs, trading strategy, abnormal return

JEL Classification: G14

Suggested Citation

Hanna, J. Douglas and Ready, Mark, Profitable Predictability in the Cross Section of Stock Returns. Journal of Financial Economics, Vol. 78, pp. 463-505, 2005, Available at SSRN: https://ssrn.com/abstract=193228 or http://dx.doi.org/10.2139/ssrn.193228

J. Douglas Hanna

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-768-2234 (Phone)
214-768-4099 (Fax)

Mark Ready (Contact Author)

University of Wisconsin Madison ( email )

5274B Grainger Hall
975 University Ave
Madison, WI 53706
United States
6082625226 (Phone)

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