Recency Bias and the Cross-Section of International Stock Returns

54 Pages Posted: 1 May 2021 Last revised: 6 Nov 2021

See all articles by Nusret Cakici

Nusret Cakici

Fordham university

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business

Date Written: April 23, 2021

Abstract

Investors often focus on recent information only, underestimating the relevance of data from the distant past. In consequence, the ordering of historical returns reliably predicts future stock performance in the cross-section. Using data from 49 countries, we comprehensively examine this anomaly within international markets. The average return differential between the high and low deciles of global stocks sorted on chronological return ordering equals 0.91% per month. The effect is distinctly robust among the biggest companies but exhibits substantial international heterogeneity. The mispricing prevails in countries characterized by high individualism and shareholder protection. Furthermore, it is concentrated following down markets and periods of excessive volatility.

Keywords: chronological return ordering, recency bias, behavioral finance, the cross-section of stock returns, asset pricing, return predictability, international markets

JEL Classification: G11, G12, G14, G15

Suggested Citation

Cakici, Nusret and Zaremba, Adam, Recency Bias and the Cross-Section of International Stock Returns (April 23, 2021). Available at SSRN: https://ssrn.com/abstract=3832358 or http://dx.doi.org/10.2139/ssrn.3832358

Nusret Cakici

Fordham university ( email )

113 West 60th Street
New York, NY 10023
United States
2017473227 (Phone)
07446 (Fax)

Adam Zaremba (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

HOME PAGE: http://adamzaremba.pl

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
433
Abstract Views
1,214
rank
86,240
PlumX Metrics