Nearness to the 52-Week High and Low Prices, Past Returns, and Average Stock Returns
60 Pages Posted: 19 Jun 2016
Date Written: June 17, 2016
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
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