The Power of Past Stock Returns to Explain Future Stock Returns

48 Pages Posted: 8 Nov 2016

Date Written: January 1, 1995

Abstract

Researchers have long argued over whether strategies based on past stock returns have power to explain future stock returns. This paper finds no convincing evidence that either short-run or long-run contrarian strategies represent important factors for explaining the cross-section of stock returns. In contrast, the properly specified one-year momentum strategy has explanatory power for stock returns when used alone, when tested against size and book-to-market, and when subjected to exhaustive robustness checks. We conclude that one-year momentum represents a necessary third factor, along with firm size and book-to-market, for explaining the cross-section of stock returns.

Keywords: Asset Pricing, Factor Investing, Momentum Factor, Book-To-Market Factor, Cross Section of Stock Returns

Suggested Citation

Asness, Cliff S., The Power of Past Stock Returns to Explain Future Stock Returns (January 1, 1995). Available at SSRN: https://ssrn.com/abstract=2865769 or http://dx.doi.org/10.2139/ssrn.2865769

Cliff S. Asness (Contact Author)

AQR Capital Management, LLC ( email )

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Greenwich, CT 06830
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