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The long-run reversal in the long run: Insights from two centuries of international equity returns

The long-run reversal in the long run: Insights from two centuries of international equity returns
The long-run reversal in the long run: Insights from two centuries of international equity returns

We perform the most comprehensive test of long-term reversal in national equity indices ever done. Having examined data from 71 countries for the years 1830 through 2019, we demonstrate a strong reversal pattern: the past long-term return negatively predicts future performance. The phenomenon is not subsumed by other established cross-sectional return patterns, including the value effect. The long-term reversal is robust to many considerations but highly unstable through time. Finally, our findings support the overreaction explanation of this anomaly.

Asset pricing, Country equity indices, Early security data, Equity anomalies, Long-run reversal, Long-term reversal, Return predictability
0927-5398
177-199
Zaremba, Adam
30534111-ed33-47e9-bb18-2163d304eca6
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Raza, Muhammad Wajid
727fdc4e-6a97-4f5d-89fd-1732f30151d5
Zaremba, Adam
30534111-ed33-47e9-bb18-2163d304eca6
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Raza, Muhammad Wajid
727fdc4e-6a97-4f5d-89fd-1732f30151d5

Zaremba, Adam, Kizys, Renatas and Raza, Muhammad Wajid (2020) The long-run reversal in the long run: Insights from two centuries of international equity returns. Journal of Empirical Finance, 55, 177-199. (doi:10.1016/j.jempfin.2019.11.007).

Record type: Article

Abstract

We perform the most comprehensive test of long-term reversal in national equity indices ever done. Having examined data from 71 countries for the years 1830 through 2019, we demonstrate a strong reversal pattern: the past long-term return negatively predicts future performance. The phenomenon is not subsumed by other established cross-sectional return patterns, including the value effect. The long-term reversal is robust to many considerations but highly unstable through time. Finally, our findings support the overreaction explanation of this anomaly.

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More information

Accepted/In Press date: 24 November 2019
e-pub ahead of print date: 27 November 2019
Published date: January 2020
Keywords: Asset pricing, Country equity indices, Early security data, Equity anomalies, Long-run reversal, Long-term reversal, Return predictability

Identifiers

Local EPrints ID: 436972
URI: http://eprints.soton.ac.uk/id/eprint/436972
ISSN: 0927-5398
PURE UUID: 59159cf0-29ca-4162-bfe5-1aa3c4d07d72
ORCID for Renatas Kizys: ORCID iD orcid.org/0000-0001-9104-1809

Catalogue record

Date deposited: 14 Jan 2020 18:33
Last modified: 28 Apr 2022 02:27

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Contributors

Author: Adam Zaremba
Author: Renatas Kizys ORCID iD
Author: Muhammad Wajid Raza

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