Predictability of short-horizon returns in international equity markets

Dilip K. Patro, Yangru Wu

Research output: Contribution to journalArticlepeer-review

41 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)553-584
Number of pages32
JournalJournal of Empirical Finance
Volume11
Issue number4
DOIs
StatePublished - Sep 2004

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • International equity markets
  • Momentum strategies
  • Predictability
  • Variance ratio

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