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What Do We Really Know About the Cross-Sectional Relation
Between Past and Expected Returns?

50 Pages Posted: 25 Jan 2002  

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz

Yale University, Yale SOM; AQR Capital; National Bureau of Economic Research (NBER)

Date Written: December 2001

Abstract

Multihorizon temporal relationships between stock returns are complex due to confounding sources of return premia, microstructure effects, and changes in the relationship over various horizons. We find the relation to be further complicated by the sign and consistency of the past return that also varies, somewhat sensibly, with the season and the tax environment. Accounting for these additional effects using a parsimonious technical trading rule generates surprisingly large abnormal returns, despite controlling for microstructure effects, transaction costs, and date-snooping biases. The documented variation in profits across stock characteristics, season, and tax environment appears inconsistent with existing theory, but may point to future explanations for the relation between past and expected returns.

JEL Classification: G12, G14

Suggested Citation

Grinblatt, Mark and Moskowitz, Tobias J., What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns? (December 2001). Yale ICF Working Paper No. 00-72. Available at SSRN: https://ssrn.com/abstract=296643 or http://dx.doi.org/10.2139/ssrn.296643

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1098 (Phone)
310-206-5455 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tobias J. Moskowitz (Contact Author)

Yale University, Yale SOM ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu/tobias-j-moskowitz

AQR Capital ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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