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TIME‐VARYING FACTORS AND CROSS‐AUTOCORRELATIONS IN SHORT‐HORIZON STOCK RETURNS
Author(s) -
Hameed Allaudeen
Publication year - 1997
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1997.tb00259.x
Subject(s) - predictability , economics , portfolio , stock (firearms) , econometrics , autocorrelation , financial economics , mathematics , statistics , mechanical engineering , engineering
Abstract In this paper I show that the lead‐lag pattern between large and small market value portfolio returns is consistent with differential variations in their expected return components. I find that the larger predictability of returns on the portfolio of small stocks may be due to a higher exposure of these firms to persistent (time‐varying) latent factors. Additional evidence suggests that the asymmetric predictability cannot be fully explained by lagged price adjustments to common factor shocks: (i) lagged returns on large stocks do not have a strong causal effect on returns on small stocks; (ii) trading volume is positively related to own‐ and cross‐autocorrelations in weekly portfolio returns; and (iii) significant cross‐autocorrelation exists between current returns on large stocks and lagged returns on small stocks when trading volume is high.