Long Horizon Mean Reversion for the Brussels Stock Exchange: Evidence for the 19th Century
78 Pages Posted: 4 Mar 2005
Date Written: December 20, 2004
In this paper, we introduce a completely new and unique historical dataset of Belgian stock returns during the nineteenth and the beginning of the twentieth century. This high-quality database comprises stock price and company related information on more than 1500 companies. Given the extensive use of CRSP return data and the data mining risks involved it provides a valid out-of-sample dataset to test how robust 'prevailing' asset pricing anomalies are.
We re-examine mean reversals in long horizon returns using an alternative framework of Hodrick (1992) with better small sample properties. Contrary to Fama and French (1988) and Poterba and Summers (1988), our results show that stock prices do not contain autoregressive stationary components but instead resemble a random walk. Capital appreciation returns exhibit stronger time-varying behavior than total returns. Belgian stock returns demonstrate strongly significant seasonality in January notwithstanding the absence of taxes. Moreover, long horizon mean reversion is present, however, completely concentrated in January.
Keywords: Financial market history, market efficiency, univariate stock return predictability
JEL Classification: G10, G14, N23
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