Recency Bias and the Cross-Section of International Stock Returns

Author: Nusret Cakci, Adam Zaremba

Investors often focus on recent information only, underestimating the relevance of data from the distant past. In consequence, the ordering of historical returns reliably predicts future stock performance in the cross-section. Using data from 49 countries, we comprehensively examine this anomaly within international markets. The average return differential between the high and low deciles of global stocks sorted on chronological return ordering equals 0.91% per month. The effect is distinctly robust among the biggest companies but exhibits substantial international heterogeneity. The mispricing prevails in countries characterized by high individualism and shareholder protection. Furthermore, it is concentrated following down markets and periods of excessive volatility.



Cakici, Nusret and Zaremba, Adam, Recency Bias and the Cross-Section of International Stock Returns (April 23, 2021). Available at SSRN: https://ssrn.com/abstract=3832358 or http://dx.doi.org/10.2139/ssrn.3832358
Source: https://papers.ssrn.com/sol3/papers.cfm?abstr...

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