Abstract
Starting point for my own analysis of intertemporal dependence in the German stock market is the winner-loser hypothesis of DeBondt and Thaler (1985). In this chapter I reinvestigate this hypothesis for the cross section of German stock returns from 1968 to 1986.
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The appropriate adjustment factors have been kindly provided by the Karlsruher Kapitalmarkt Datenbank. A detailed description how the adjustment factors are calculated is available in Sauer (1992).
This test is also known as the Mann-Whitney U Test (cf Lee (1993), p. 725). 23
Critical values can be obtained from Müning and Trenkler (1994), p. 378 ff.
In addition, one could also test for differences in the performance between the winner, the middle, and the loser portfolios simultaneously. This can be tested by the Kruskal-Wallis Test (cf. Lee (1993), pp. 729 ff.). The Kruskal-Wallis Test generalizes the procedure of the Wilcoxon Rank Sum Test: Returns during the test period from stocks in different portfolios are pooled and ranked. Under 10 the returns in all portfolios are drawn from the same distribution. The Kruskal-Wallis Test then tests whether there is a difference in the location between any of the investigated portfolios. Although this is a natural extension of the pairwise comparison of the Wilcoxon Rank Sum Test, the additional information is not too helpful for the portfolio manager. From the Kruskal-Wallis Test he can only identify that there is a difference between the performance of any of the portfolios, but not between which of the portfolios. The essential information for the portfolio manager is obtained from the pairwise comparison. Therefore, my analysis is restricted to the Wilcoxon Rank Sum Test.
The element in row i and column j shows the frequency of a stock which has been in portfolio i to appear in portfolio j at the end of the next 5-year period
This structure is also known as “polytomous structure” (cf. McCu llagh and Nelder (1989), chapter 5, p. 149ff.)
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© 2004 Springer-Verlag Berlin Heidelberg
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Külpmann, M. (2004). Empirical Evidence for Germany. In: Irrational Exuberance Reconsidered. Springer Finance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-24765-4_4
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DOI: https://doi.org/10.1007/978-3-540-24765-4_4
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