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Lead-lag effects in the mean and variance of returns of size-sorted UK equity portfolios

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  • Angelos Kanas

Abstract

We test for lead-lag effects in the mean and variance among size-sorted portfolios for the UK stock market. We construct three sets of portfolios, namely a set of size-sorted equally-weighted portfolios of different capitalization size, a set of size-sorted value-weighted portfolios of different capitalization size, and a third set of portfolios of the same capitalization size. The recently proposed Cross Correlation Function test is employed. For both sets of portfolios with different capitalization size, we find evidence of a lead effect in both the mean and the variance from large-firm portfolios to small-firm portfolios. This result does not depend on the weighting scheme used to construct portfolios, and indicates that contrarian trading strategies on large-firm portfolios are profitable. For portfolios of equal capitalization size, there is hardly any evidence of a lead-lag effect in either the mean or the variance. This suggests that the lead-lag effect is due to the difference in the capitalization size among portfolios. Copyright Springer-Verlag 2004

Suggested Citation

  • Angelos Kanas, 2004. "Lead-lag effects in the mean and variance of returns of size-sorted UK equity portfolios," Empirical Economics, Springer, vol. 29(3), pages 575-592, September.
    • Handle: RePEc:spr:empeco:v:29:y:2004:i:3:p:575-592
    DOI: 10.1007/s00181-004-0199-3
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    Cited by:

    1. Qamar Ishtiaq & Fahad Abdullah, 2015. "Ownership Concentration and Cross-Autocorrelation in Portfolio Returns," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 7(2), pages 85-104, October.

    More about this item

    Keywords

    Lead-lag effects; trading strategies; contrarian strategies; EGARCH; Cross Correlation Function (CCF); G10; G12; G15;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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