Short-term reversal is the term used for the empirical observation that stocks with high returns in...
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Short-term reversal is the term used for the empirical observation that stocks with high returns in the previous month tend to have lower returns in the next month, and vice versa. The following are stock returns for 6 stocks for January, February and March. January February March Stock 1 0.15 -0.02 0.07 Stock 2 0.08 -0.45 -0.37 Stock 3 -0.24 -0.50 0.30 Stock 4 0.21 0.40 0.05 Stock 5 0.49 -0.48 0.40 Stock 6 -0.24 0.32 0.34 Form a tercile hedge portfolio for March sorted on the previous month stock return. Since this is a reversal strategy, we will go long portfolio 1 and short portfolio 3 so hedge portfolio return = portfolio 1 minus portfolio 3 return What is the hedge portfolio return for March? Short-term reversal is the term used for the empirical observation that stocks with high returns in the previous month tend to have lower returns in the next month, and vice versa. The following are stock returns for 6 stocks for January, February and March. January February March Stock 1 0.15 -0.02 0.07 Stock 2 0.08 -0.45 -0.37 Stock 3 -0.24 -0.50 0.30 Stock 4 0.21 0.40 0.05 Stock 5 0.49 -0.48 0.40 Stock 6 -0.24 0.32 0.34 Form a tercile hedge portfolio for March sorted on the previous month stock return. Since this is a reversal strategy, we will go long portfolio 1 and short portfolio 3 so hedge portfolio return = portfolio 1 minus portfolio 3 return What is the hedge portfolio return for March?
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