Horizon effects in average returns

The role of slow information diffusion

Oliver Boguth, Murray Carlson, Adlai Fisher, Mikhail Simutin

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We characterize linkages between average returns calculated at different horizons. Theoretically, when stocks incorporate information slowly, average short-horizon returns are downward biased. Buy-and-hold strategies can amplify the effect. In contrast, existing theories analyze price noises that are independent of fundamentals, and buy-and-hold portfolio returns are unaffected. We document horizon effects as large as 10% annualized in daily and monthly style portfolios and international indices. Slow reaction to market information, identified by gradually declining lagged betas, is an important cause. These findings have natural consequences for performance evaluation.

Original languageEnglish (US)
Pages (from-to)2241-2281
Number of pages41
JournalReview of Financial Studies
Volume29
Issue number8
DOIs
StatePublished - Aug 1 2016

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Information diffusion
Linkage
Market information
Performance evaluation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Horizon effects in average returns : The role of slow information diffusion. / Boguth, Oliver; Carlson, Murray; Fisher, Adlai; Simutin, Mikhail.

In: Review of Financial Studies, Vol. 29, No. 8, 01.08.2016, p. 2241-2281.

Research output: Contribution to journalArticle

Boguth, Oliver ; Carlson, Murray ; Fisher, Adlai ; Simutin, Mikhail. / Horizon effects in average returns : The role of slow information diffusion. In: Review of Financial Studies. 2016 ; Vol. 29, No. 8. pp. 2241-2281.
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