The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Published: 12/17/2002 | DOI: 10.1111/0022-1082.00266
Evidence of Predictable Behavior of Security Returns
Published: July 1990 | DOI: 10.1111/j.1540-6261.1990.tb05110.x
This paper presents new empirical evidence of predictability of individual stock returns. The negative first‐order serial correlation in monthly stock returns is highly significant. Furthermore, significant positive serial correlation is found at longer lags, and the twelve‐month serial correlation is particularly strong. Using the observed systematic behavior of stock returns, one‐step‐ahead return forecasts are made and ten portfolios are formed from the forecasts. The difference between the abnormal returns on the extreme decile portfolios over the period 1934–1987 is 2.49 percent per month.
Seasonality in Stock Price Mean Reversion: Evidence from the U.S. and the U.K.
Published: September 1991 | DOI: 10.1111/j.1540-6261.1991.tb04624.x
The evidence of slowly mean‐reverting components in stock prices has been controversial. The hypothesis of stock price mean‐reversion is tested using a regression model that yields the highest asymptotic power among a class of regression tests. Although the evidence that the equally weighted index of stocks exhibits mean‐reversion is significant in the period 1926–1988, this phenomenon is entirely concentrated in January. In the post‐war period both the equally weighted and the value‐weighted indices exhibit seasonal mean‐reversion in January. A similar phenomenon is also observed for the equally weighted index of stocks traded on the London Stock Exchange.
Treasury Auction Bids and the Salomon Squeeze
Published: September 1993 | DOI: 10.1111/j.1540-6261.1993.tb04759.x
Recent press accounts claim that collusion is common practice in Treasury auctions and that as a result the auction profits are excessive. But, this paper finds that the auction prices are on average marginally higher than the secondary market bid prices. The auction profits, however, are systematically related to the total fraction of winning bids tendered by banks and dealers. The postauction prices of the two‐year notes in which Salomon Brothers had a 94 percent holding are also examined. The secondary market prices of these notes were significantly higher than the estimated competitive prices in the four‐week postissue period.
Profitability of Momentum Strategies: An Evaluation of Alternative Explanations
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00342
Narasimhan Jegadeesh, Sheridan Titman
This paper evaluates various explanations for the profitability of momentum strategies documented in Jegadeesh and Titman (1993). The evidence indicates that momentum profits have continued in the 1990s, suggesting that the original results were not a product of data snooping bias. The paper also examines the predictions of recent behavioral models that propose that momentum profits are due to delayed overreactions that are eventually reversed. Our evidence provides support for the behavioral models, but this support should be tempered with caution.
An Analysis of Bidding in the Japanese Government Bond Auctions
Published: 12/17/2002 | DOI: 10.1111/0022-1082.305342
Yasushi Hamao, Narasimhan Jegadeesh
We examine the bidding patterns and auction profits in the Japanese Government Bond (JGB) auctions and empirically test the predictions of auction theory. We find that the average profit in JGB auctions is not reliably different from zero, and the degree of competition and the level of uncertainty are insignificant in determining auction profits. The winning shares of the U.S. dealers are positively related to auction profits, whereas the winning shares of their Japanese counterparts show a negative association. We also find that the share of winnings of Japanese dealers tends to be correlated with the share of winnings of their compatriot dealers but a similar relation is not found for U.S. dealers.
Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
Published: March 1993 | DOI: 10.1111/j.1540-6261.1993.tb04702.x
NARASIMHAN JEGADEESH, SHERIDAN TITMAN
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.
Relative Pricing of Eurodollar Futures and Forward Contracts
Published: September 1996 | DOI: 10.1111/j.1540-6261.1996.tb04077.x
MARK GRINBLATT, NARASIMHAN JEGADEESH
Past research explains observed spreads between futures and forward Eurodollar yields as being due to the futures contract's mark‐to‐market feature. We derive closed form solutions for this yield spread and show that, theoretically, it should be small. Also, differences in liquidity, taxation, and default risk cannot account for the large spreads observed. We also present evidence that the spreads, which are nonnegligible primarily in the first half of the sample period, are likely to be attributable to the mispricing of futures contracts relative to the forward rates and that the mispricing was gradually eliminated over time.
Published: December 1996 | DOI: 10.1111/j.1540-6261.1996.tb05222.x
LOUIS K. C. CHAN, NARASIMHAN JEGADEESH, JOSEF LAKONISHOK
We examine whether the predictability of future returns from past returns is due to the market's underreaction to information, in particular to past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. Market risk, size, and book–to–market effects do not explain the drifts. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Security analysts' earnings forecasts also respond sluggishly to past news, especially in the case of stocks with the worst past performance. The results suggest a market that responds only gradually to new information.
Analyzing the Analysts: When Do Recommendations Add Value?
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00657.x
Narasimhan Jegadeesh, Joonghyuk Kim, Susan D. Krische, Charles M. C. Lee
We show that analysts from sell‐side firms generally recommend “glamour” (i.e., positive momentum, high growth, high volume, and relatively expensive) stocks. Naïve adherence to these recommendations can be costly, because the level of the consensus recommendation adds value only among stocks with favorable quantitative characteristics (i.e., value stocks and positive momentum stocks). In fact, among stocks with unfavorable quantitative characteristics, higher consensus recommendations are associated with worse subsequent returns. In contrast, we find that the quarterly change in consensus recommendations is a robust return predictor that appears to contain information orthogonal to a large range of other predictive variables.