Are stock returns related toshort-term and long-term past returns? Australian evidence

Abstract

The purpose of this article is to identify whether there is a short-term continuation of returns and a long-term reversal of returns in an Australian setting and to subsequently investigate if the Capital Asset Pricing Model (hereafter CAPM) and the Fama and French (1993) three factor model (hereafter FFM) are capable of explaining these anomalies. We find a short-term continuation of returns but not a long-term reversal of returns. We also find that both models fail to explain the short-term continuation in returns. However, the FFM yields higher explanatory power than the CAPM.