Filter rules based on price and volume in individual security overreaction |
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Authors: | Cooper M |
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Affiliation: | Krannert School of Management, 1310 Krannert Building, West Lafayette, IN 47907, USA e-mail: mcooper@mgmt.purdue.edu |
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Abstract: | I present evidence of predictability in a sample constructedto minimize concerns about time-varying risk premia and market-microstructureeffects. I use filter rules on lagged return and lagged volumeinformation to uncover weekly over-reaction profits on large-capitalizationNYSE and AMEX securities. I find that decreasing-volume stocksexperience greater reversals. Increasing-volume stocks exhibitweaker reversals and positive autocorrelation. A real-time simulationof the filter strategies suggests that an investor who pursuesthe filter strategy with relatively low transaction costs willstrongly outperform an investor who follows a buy-and-hold strategy. |
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