A New Predictability Pattern in the US Stock Market Returns

21 Pages Posted: 4 Apr 2022 Last revised: 11 May 2022

See all articles by Valeriy Zakamulin

Valeriy Zakamulin

University of Agder - School of Business and Law

Date Written: March 9, 2022

Abstract

In this article, we document a new stock market anomaly that seems to have escaped the attention of both investment professionals and academics alike. We find that over more than a century, the monthly market return has been predicted by the monthly market return at lag 5. This predictability is market-wide and is most evident in the returns of portfolios of large and growth stocks. The trading strategy that incorporates this predictability yields superior performance that cannot be attributed to common risk factors. A closer investigation of the new anomaly reveals that not each calendar month possesses predictive ability. Therefore, there is a linkage between the new anomaly and calendar effects in stock returns.

Keywords: stock return predictability, market efficiency, stock return seasonality, calendar effects

JEL Classification: G11, G12, G14

Suggested Citation

Zakamulin, Valeriy, A New Predictability Pattern in the US Stock Market Returns (March 9, 2022). Available at SSRN: https://ssrn.com/abstract=4053277 or http://dx.doi.org/10.2139/ssrn.4053277

Valeriy Zakamulin (Contact Author)

University of Agder - School of Business and Law ( email )

Service Box 422
Kristiansand, N-4604
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+47 38141039 (Phone)

HOME PAGE: http://vzakamulin.weebly.com/

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