Abstract
This paper documents that strategies which buy stocks that have performed well in
the past and sell stocks that have performed poorly in the past generate significant
positive returns over 3- to 12-month holding periods. We find that the profitability
of these strategies are not due to their systematic risk or to delayed stock price
reactions to common factors. However, part of the abnormal returns generated in
the first year after portfolio formation dissipates in the following two years. A
similar pattern of returns around the earnings announcements of past winners and
losers is also documented.
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