Cross-Sectional and Time-Series Tests of Return Predictability: What Is the Difference?

72 Pages Posted: 25 May 2015 Last revised: 18 Oct 2017

See all articles by Amit Goyal

Amit Goyal

University of Lausanne; Swiss Finance Institute

Narasimhan Jegadeesh

Emory University - Department of Finance

Date Written: July 1, 2017

Abstract

We compare the performance of time-series (TS) and cross-sectional (CS) strategies based on past returns. While CS strategies are zero-net investment long/short strategies, TS strategies take on a time-varying net-long investment in risky assets. For individual stocks, the difference between the performances of TS and CS strategies is largely due to this time-varying net-long investment. With multiple international asset classes with heterogeneous return distributions, scaled CS strategies significantly outperform similarly scaled TS strategies.

Keywords: Momentum, market timing, return predictability

JEL Classification: G10, G12, G14

Suggested Citation

Goyal, Amit and Jegadeesh, Narasimhan, Cross-Sectional and Time-Series Tests of Return Predictability: What Is the Difference? (July 1, 2017). Swiss Finance Institute Research Paper No. 15-13. Available at SSRN: https://ssrn.com/abstract=2610288 or http://dx.doi.org/10.2139/ssrn.2610288

Amit Goyal (Contact Author)

University of Lausanne ( email )

Lausanne, Vaud CH-1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Narasimhan Jegadeesh

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

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