Working Paper: CEPR ID: DP18196
Authors: Fabio Braggion; Joost Driessen; Lyndon Moore
Abstract: We study equity markets between 1900 and 1925 to provide a pure out-of-sample test of three major asset pricing anomalies: momentum, long-term reversal, and size. We find strong evidence of momentum in almost every market. Momentum is a local phenomenon, as the returns of momentum long-short portfolios have low correlations across markets. We find no evidence of long-term reversals or size effects. In fact, large stocks slightly outperform small stocks in most markets. The presence of momentum, combined with the absence of long-term reversals, indicates that underreaction should be considered as a key aspect of behavioral theories of momentum.
Keywords: No keywords provided
JEL Codes: G10; G12; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| past performance (C52) | future returns (G17) |
| momentum strategies (C69) | positive returns (G12) |
| long-term winners (G14) | long-term losers (G41) |
| large stocks (G10) | small stocks (G10) |
| absence of long-term reversals (D52) | validity of theoretical models (C52) |