Predictability of Short-Horizon Returns in International Equity Markets

Posted: 3 Jun 2004

See all articles by Dilip K. Patro

Dilip K. Patro

OCC

Yangru Wu

Rutgers University, Newark - School of Business - Department of Finance & Economics

Abstract

This paper examines the predictability of equity index returns for 18 developed countries. Based on the variance ratio test, the random walk hypothesis can be rejected at conventional significance levels for 11 countries with daily data and for 15 countries with weekly data. Monthly indices may well be characterized as a random walk for the majority of countries. The excess returns from buying past winners and selling past losers are positive and particularly striking for daily data, where they are not only statistically significant but also economically important in the absence of transaction costs. Imposing a reasonable transaction cost substantially reduces the profitability.

Keywords: International equity markets, Predictability, Variance ratio, Momentum strategies

JEL Classification: G15, G12

Suggested Citation

Patro, Dilip K. and Wu, Yangru, Predictability of Short-Horizon Returns in International Equity Markets. Available at SSRN: https://ssrn.com/abstract=554101

Dilip K. Patro (Contact Author)

OCC ( email )

400 7th Street SW
Washington, DC 20219
United States
202-649-5548 (Phone)

Yangru Wu

Rutgers University, Newark - School of Business - Department of Finance & Economics ( email )

1 Washington Park
Newark, NJ 07102
United States
973-353-1146 (Phone)
973-353-1006 (Fax)

HOME PAGE: http://andromeda.rutgers.edu/~yangruwu

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