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The disappearance of style in the US equity market

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  • Soosung Hwang
  • Stephen E. Satchell

Abstract

This article investigates the modelling of style returns in the United States and the returns to style 'tilts' based on forecasts of enhanced future style returns. We use hidden Markov model to build our forecasts for data from 1975 to 1998. We do not include more recent observations as the subsequent trend and volatility sways the analysis. Our finding that style returns are less forecastible in the late 1990s is consistent with the hypothesis that style returns are the result of anomalies rather than risk premia. The erosion of anomalous returns as public awareness of their presence is translated into strategies that arbitrage away the excess returns seems to be a hypothesis consistent with our modelling results.

Suggested Citation

  • Soosung Hwang & Stephen E. Satchell, 2007. "The disappearance of style in the US equity market," Applied Financial Economics, Taylor & Francis Journals, vol. 17(8), pages 597-613.
    • Handle: RePEc:taf:apfiec:v:17:y:2007:i:8:p:597-613
    DOI: 10.1080/09603100701217978
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    References listed on IDEAS

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    1. Ferson, Wayne E. & Harvey, Campbell R., 1997. "Fundamental determinants of national equity market returns: A perspective on conditional asset pricing," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1625-1665, December.
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    9. Hamilton, James D, 1991. "A Quasi-Bayesian Approach to Estimating Parameters for Mixtures of Normal Distributions," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 27-39, January.
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    Cited by:

    1. G. Christodoulakis & E. Mamatzakis, 2010. "Return attribution analysis of the UK insurance portfolios," Annals of Finance, Springer, vol. 6(3), pages 405-420, July.
    2. Billio, Monica & Getmansky, Mila & Pelizzon, Loriana, 2012. "Dynamic risk exposures in hedge funds," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3517-3532.
    3. Soosung Hwang & Alexandre Rubesam, 2015. "The disappearance of momentum," The European Journal of Finance, Taylor & Francis Journals, vol. 21(7), pages 584-607, May.

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