Time Varying Factors and Cross-Autocorrelations in Short Horizon Stock Returns

J. OF FINANCIAL RESEARCH

Posted: 17 Mar 1997

See all articles by Allaudeen Hameed

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance

Abstract

In this paper I show that the lead-lag pattern between large and small market value portfolio returns is consistent with differential variations in their expected return components. I find that the larger predictability of returns on the portfolio of small stocks may be due to a higher exposure of these firms to persistent (time-varying) latent factors. Additional evidence suggest that the asymmetric predictability cannot be fully explained by lagged price adjustments to common factor shocks: (i) lagged returns on large stocks do not have strong causal effect on returns on small stocks; (ii) trading volume is positively related to own and cross-autocorrelations in weekly portfolio returns; and (iii) significant cross- autocorrelation exists between current returns on large stocks and lagged returns on small stocks when trading volume is high.

JEL Classification: G11

Suggested Citation

Hameed, Allaudeen, Time Varying Factors and Cross-Autocorrelations in Short Horizon Stock Returns. J. OF FINANCIAL RESEARCH, Available at SSRN: https://ssrn.com/abstract=8187

Allaudeen Hameed (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu.sg/faculty-details/?profId=1

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