Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5100617 | Journal of Financial Economics | 2016 | 64 Pages |
Abstract
In this paper, we provide a trend factor that captures simultaneously all three stock price trends: the short-, intermediate-, and long-term, by exploiting information in moving average prices of various time lengths whose predictive power is justified by a proposed general equilibrium model. It outperforms substantially the well-known short-term reversal, momentum, and long-term reversal factors, which are based on the three price trends separately, by more than doubling their Sharpe ratios. During the recent financial crisis, the trend factor earns 0.75% per month, while the market loses â2.03% per month, the short-term reversal factor loses â0.82%, the momentum factor loses â3.88%, and the long-term reversal factor barely gains 0.03%. The performance of the trend factor is robust to alternative formations and to a variety of control variables. From an asset pricing perspective, it also performs well in explaining cross-section stock returns.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Yufeng Han, Guofu Zhou, Yingzi Zhu,