Are Return Seasonalities Due to Risk or Mispricing? Evidence from Seasonal Reversals

48 Pages Posted: 15 Nov 2018 Last revised: 24 Apr 2019

See all articles by Matti Keloharju

Matti Keloharju

Aalto University School of Business; Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Juhani T. Linnainmaa

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Peter M. Nyberg

Aalto University

Date Written: April 22, 2019

Abstract

Stocks tend to earn high or low returns relative to other stocks every year in the same month (Heston and Sadka 2008). We show these seasonalities are balanced out by seasonal reversals: a stock that has a high expected return relative to other stocks in one month has a low expected return relative to other stocks in the other months. The seasonalities and seasonal reversals add up to zero over the calendar year, which is consistent with seasonalities being driven by temporary mispricing. Seasonal reversals are economically large, statistically highly significant, and they resemble, but are distinct from, long-term reversals.

Keywords: seasonalities, seasonal reversals, expected returns

JEL Classification: G12, G14

Suggested Citation

Keloharju, Matti and Linnainmaa, Juhani T. and Nyberg, Peter Mikael, Are Return Seasonalities Due to Risk or Mispricing? Evidence from Seasonal Reversals (April 22, 2019). Available at SSRN: https://ssrn.com/abstract=3276334 or http://dx.doi.org/10.2139/ssrn.3276334

Matti Keloharju

Aalto University School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Juhani T. Linnainmaa (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.tuck.dartmouth.edu/faculty/faculty-directory/juhani-linnainmaa

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter Mikael Nyberg

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

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