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Long-term industry reversals

Wu, Yuliang and Mazouz, Khelifa 2016. Long-term industry reversals. Journal of Banking & Finance 68 , pp. 236-250. 10.1016/j.jbankfin.2016.03.017

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Abstract

This study investigates whether, how and why industry performance can drive long-term return reversals. Using data from the UK, we find that firms in losing industries significantly outperform those in winning industries over the subsequent five years. These industry reversals remain strong and persistent after controlling for stock momentum, industry momentum, seasonal effects and traditional risk factors. We find a strong influence of past industry performance on stock return reversals. Our results also show that past industry performance is the driving force behind long-term reversals. Specifically, we find that industry components drive stock reversals, while past stock performance does not explain industry reversals. Further analysis suggests that industry reversals are present in both good and bad states of the economy and are stronger in industries with high valuation uncertainty. This implies that industry reversals are more likely to be a result of mispricing. Key words: contrarian performance, industry, long term

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HF Commerce
Publisher: Elsevier
ISSN: 0378-4266
Date of Acceptance: 28 March 2016
Last Modified: 05 Jun 2017 16:49
URI: http://orca.cf.ac.uk/id/eprint/88899

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