On the Long-Run Holding Returns of Japanese Stocks: Individual Stocks vs. Portfolios

Abstract

We investigate the long-run holding returns of the stocks listed on eight Japanese stock exchanges with weekly return data from 1977 through 2007. We find existence of significant positive autocorrelations for the smallest and the middle quintile portfolios from the variance ratio test, but not for the largest. However, returns are negatively correlated at the individual stock level and positively correlated at the portfolio level. We demonstrate that the negative correlation disappears as the number of stocks in each portfolio is increased to four, which shows the idiosyncratic risk of individual stock is dominated by the positive autocorrelation at the portfolio level.