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Evidence of Predictable Behavior of Security Returns

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  • Jegadeesh, Narasimhan

Abstract

This paper presents new empirical evidence of predictability of individual stock returns. The negative first-order serial correlation in monthly stock returns is highly significant. Furthermore, significant positive serial correlation is found at longer lags, and the twelve-month serial correlation is particularly strong. Using the observed systematic behavior of stock return, one-step-ahead return forecasts are made and ten portfolios are formed from the forecasts. The difference between the abnormal returns on the extreme decile portfolios over the period 1934-87 is 2.49 percent per month. Copyright 1990 by American Finance Association.

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  • Jegadeesh, Narasimhan, 1990. "Evidence of Predictable Behavior of Security Returns," Journal of Finance, American Finance Association, vol. 45(3), pages 881-898, July.
    • Handle: RePEc:bla:jfinan:v:45:y:1990:i:3:p:881-98
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