Conrad and Kaul (1993) report that most of De Bondt and Thaler's (1985) long-term overreaction findings can be attributed to a combination of bid-ask effects when monthly cumulative average returns (CARs) are used, and price, rather than prior returns. In direct tests, we find little difference in test-period returns whether CARs or buy-and-hold returns are used, and that price has little predictive ability in cross-sectional regressions. The difference in findings between this study and Conrad and Kaul's is primarily due to their statistical methodology. They confound cross-sectional patterns and aggregate time-series mean reversion, and introduce a survivor bias. Their procedures increase the influence of price at the expense of prior returns.
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