Return Recency as Stock Return Predictor Worldwide

Does the recency effect evident for U.S. stock returns carry over to stocks globally? In their May 2021 paper entitled “Chronological Return Ordering and the Cross-Section of International Stock Returns”, Nusret Cakici and Adam Zaremba examine whether the recency effects holds among stocks worldwide. Their measure of recency (Chronological Return Ordering, CRO) for each stock each month is the correlation between daily returns and number of days until the end of the month. Low (high) CRO values indicate relatively high (low) recent returns and relatively low (high) older returns. Low (high) CRO values imply low (high) future returns. To measure the recency effect, they each month sort stocks into tenths, or deciles, and reform an equal-weighted or value-weighted hedge portfolio that is long (short) the decile with highest (lowest) recency correlations. Using daily and monthly returns and other data for stocks from 49 countries (23 developed markets and 26 emerging ones) as available starting January 1990 through December 2020 (a total of 92,680 stocks, 62,495  from developed markets and 30,185 from emerging markets), they find that: (more…)