Nearness to the 52-Week High and Low Prices, Past Returns, and Average Stock Returns

60 Pages Posted: 19 Jun 2016

See all articles by Li-Wen Chen

Li-Wen Chen

National Chung Cheng University

Hsin-Yi Yu

University of Edinburgh - Organisation Studies; National University of Kaohsiung; University of Edinburgh - Accounting and Finance

Date Written: June 17, 2016

Abstract

This study examines the interactions between trading strategies based on the nearness to the 52-week high, the nearness to the 52-week low, and past returns. We offer evidence that the nearness to the 52-week low has predictive power for future average returns. Our results also reveal that the nearness to the 52-week high as well as to the 52-week low and past returns each have certain exclusive unpriced information content in the cross-sectional pricing of stocks. Moreover, a trading strategy based on the nearness to the 52-week low provides an excellent hedge for the momentum strategy, thereby nearly doubling the Sharpe ratio of the momentum strategy.

Keywords: 52-week high, 52-week low, past returns, momentum

JEL Classification: G12; G14

Suggested Citation

Chen, Li-Wen and Yu, Hsin-Yi, Nearness to the 52-Week High and Low Prices, Past Returns, and Average Stock Returns (June 17, 2016). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2797149 or http://dx.doi.org/10.2139/ssrn.2797149

Li-Wen Chen

National Chung Cheng University ( email )

Min-Shiung, Chia-Yi, 621
Taiwan

Hsin-Yi Yu (Contact Author)

University of Edinburgh - Organisation Studies ( email )

50 George Square
William Robertson Building
Edinburgh EH8 9JY
UNITED KINGDOM

National University of Kaohsiung ( email )

Kaohsiung, 803
Taiwan

University of Edinburgh - Accounting and Finance ( email )

William Robertson Building
Edinburgh EH8 9JY
United Kingdom

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