Stock Return Predictability: New Evidence from Moving Averages of Prices and Firm Fundamentals

76 Pages Posted: 16 Feb 2018 Last revised: 5 Feb 2019

See all articles by Doron Avramov

Doron Avramov

Interdisciplinary Center (IDC) Herzliyah

Guy Kaplanski

Bar-Ilan University - Graduate School of Business Administration

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Date Written: May 22, 2018

Abstract

The distances between short- and long-run moving averages of prices and deviations of accounting fundamentals from their preceding means both are linked to future equity returns in the cross-section. This predictive power goes well beyond momentum, 52-week highs, profitability, and other prominent anomalies. Data on corporate news releases supports the notion that the predictability arises because investors underreact to deviations from prevailing anchors. Fundamentals-based anchoring predicts returns incremental to the price analog and both forms of predictability are economically significant. The anchoring rationale goes beyond the cross section and extends to the aggregate market and industry levels.

Keywords: market efficiency, technical analysis, moving averages, crossing rules, anchoring bias

JEL Classification: G12, G14

Suggested Citation

Avramov, Doron and Kaplanski, Guy and Subrahmanyam, Avanidhar, Stock Return Predictability: New Evidence from Moving Averages of Prices and Firm Fundamentals (May 22, 2018). Available at SSRN: https://ssrn.com/abstract=3111334 or http://dx.doi.org/10.2139/ssrn.3111334

Doron Avramov

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

Guy Kaplanski

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

Avanidhar Subrahmanyam (Contact Author)

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

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
939
rank
22,543
Abstract Views
2,542
PlumX Metrics