Are return seasonalities due to risk or mispricing?

Stocks tend to earn high or low returns relative to other stocks every year in the same month (Heston and Sadka, 2008). We show these seasonalities are balanced out by seasonal reversals: a stock that has a high expected return relative to other stocks in one month has a low expected return relative...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial economics 2021-01, Vol.139 (1), p.138-161
Main Authors: Keloharju, Matti, Linnainmaa, Juhani T., Nyberg, Peter
Format: Article
Language:English
Subjects:
Business schools
Cross-sectional seasonalities
Economic policy
Economic trends
Mispricing
Research institutes
Reversals
Risk
Seasonal variations
Stocks
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Stocks tend to earn high or low returns relative to other stocks every year in the same month (Heston and Sadka, 2008). We show these seasonalities are balanced out by seasonal reversals: a stock that has a high expected return relative to other stocks in one month has a low expected return relative to other stocks in the other months. The seasonalities and seasonal reversals add up to zero over the calendar year, which is consistent with seasonalities being driven by temporary mispricing. Seasonal reversals are economically large and statistically highly significant, and they resemble, but are distinct from, long-term reversals.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2020.07.009