Abstract
I present evidence of predictability in a sample constructed to minimize concerns about time-varying risk premia and market-microstructure effects. I use filter rules on lagged return and lagged volume information to uncover weekly over-reaction profits on large-capitalization NYSE and AMEX securities. I find that decreasing-volume stocks experience greater reversals. Increasing-volume stocks exhibit weaker reversals and positive autocorrelation. A real-time simulation of the filter strategies suggests that an investor who pursues the filter strategy with relatively low transaction costs will strongly outperform an investor who follows a buy-and-hold strategy. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
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