Review of Quantitative Finance and Accounting

, Volume 9, Issue 2, pp 203–217

Empirical Analyses of Three Explanations for the Positive Autocorrelation of Short-Horizon Stock Index Returns

  • JOSEPH Ogden
Article

DOI: 10.1023/A:1008216626861

Cite this article as:
Ogden, J. Review of Quantitative Finance and Accounting (1997) 9: 203. doi:10.1023/A:1008216626861

Abstract

This paper provides empirical analyses of three explanations for the observed positive autocorrelation of short-horizon stock index returns, using NYSE/AMEX and NASDAQ data. Results indicate that index autocorrelation cannot be substantially explained by either autocorrelated, time-varying expected returns, or nonsynchronous trading. The third explanation for index autocorrelation, the nonsynchronous information transfer hypothesis, states that stocks incorporate market-wide information on a nonsynchronous basis due to information and transaction costs. Evidence from analyses of mean returns on various portfolios following large returns on the S 500 futures contract, as well as regressions of portfolio returns on current and lagged futures returns, support this explanation. Small (large) firms collectively require approximately 7 (1-2) weeks to fully incorporate new market information on average, and this delayed impoundment accounts for the bulk of the observed autocorrelation.

market efficiency information transfer index return autocorrelation 

Copyright information

© Kluwer Academic Publishers 1997

Authors and Affiliations

  • JOSEPH Ogden
    • 1
  1. 1.Department of Finance and Managerial Economics, School of ManagementSUNY at BuffaloBuffalo