Two Essays on Momentum and Reversals in Stock Returns
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In the second essay, I examine alternative explanations of reversals in stock returns. George and Hwang (2007) find that long-term reversals in stock returns are driven by investorsâ incentive to defer payment of taxes on locked-in capital gains rather than by overreaction to information. I show that return reversals are instead attributable to the negative relationship between firmsâ composite share issuance and future stock returns documented in Daniel and Titman (2006). The ability of locked-in capital gains measures to forecast stock returns is largely subsumed by the composite share issuance measure. My results do not support the hypothesis that capital gains taxes drive long-term return reversals.
- Doctoral Dissertations