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

49 Pages Posted: 24 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

AQR Capital; University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: January 2002

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 data-snooping biases. The documented variation in profits across stock characteristics, season, and tax environment appear inconsistent with existing theory, but may point to future explanations for the relation between past and expected returns.

Suggested Citation

Grinblatt, Mark and Moskowitz, Tobias J., What Do We Really Know About the Cross-Sectional Relation between Past and Expected Returns? (January 2002). NBER Working Paper No. w8744. Available at SSRN: https://ssrn.com/abstract=298268

Mark Grinblatt (Contact Author)

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

AQR Capital ( email )

Greenwich, CT
United States

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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