Stock Market Winners: Conditional Probabilities, Elapsed Times, and Post-Event Returns

Abstract

Some common stocks display extreme positive performance. Between 1973 and 2020, 3,615 U.S.-listed stocks generated at least a 5x cumulative gross return relative to a prior low point, and also had a minimum inflation-adjusted market capitalization of $500 million. Among these, 29.8% repeated the performance (to achieve a 25x multiple), 9.7% repeated twice (to achieve a 125x multiple), and 2.4% did so a third time (to achieve a 625x multiple). In general, a substantial portion of the superior performance accrued prior to the year in which the multiple was attained. However, stocks that attained these multiples showed little or no evidence of positive market-adjusted returns in subsequent months, implying that the existence of extreme positive performers does not simply reflect long horizon return momentum.