The Periodic Structure of Returns to Buying Winners and Selling Losers

35 Pages Posted: 13 Jan 2004

See all articles by Steven L. Heston

Steven L. Heston

University of Maryland - Department of Finance

Ronnie Sadka

Boston College - Carroll School of Management

Date Written: November 7, 2003

Abstract

This paper documents a periodic structure of average returns to portfolio strategies that buy stocks with high historical returns and sell stocks with low historical returns. Previous research by DeBondt and Thaler (1985, 1987) used cumulative monthly returns to show historical winners earn lower average returns than historical losers 3-5 years after portfolio formation. In contrast we focus on the relationship of a single monthly historical return to future returns. We confirm the DeBondt and Thaler effect and extend it out to 20 years. But we also find an opposite anomaly - winners earn higher returns than losers at annual intervals of 12, 24, ... 240 months. While this effect is larger in January, it also occurs in other calendar months. It is not associated with size, industry, or earnings announcements, neither is it subsumed by bid-ask bounce. This evidence suggests there exists significant seasonal cross-sectional variation in stock returns.

Keywords: Momentum, long-run reversal, periodic structure of stock returns

Suggested Citation

Heston, Steven L. and Sadka, Ronnie, The Periodic Structure of Returns to Buying Winners and Selling Losers (November 7, 2003). Available at SSRN: https://ssrn.com/abstract=485216 or http://dx.doi.org/10.2139/ssrn.485216

Steven L. Heston

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

Ronnie Sadka (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
809
Abstract Views
3,569
rank
29,785
PlumX Metrics