Winner-Loser Reversals in National Stock Market Indices: Can They be Explained?



    Search for more papers by this author
    • International Monetary Fund. I thank Will Goetzmann, Mark Klock, Heidi Willmann Richards, René Stulz (the editor), an anonymous referee, and seminar participants at the Federal Reserve Board for comments, and Morgan Stanley and Company for providing some of the data used in this study. The views expressed in this article are those of the author, and do not necessarily reflect those of the International Monetary Fund.


This article examines possible explanations for “winner-loser reversals” in the national stock market indices of 16 countries. There is no evidence that loser countries are riskier than winner countries either in terms of standard deviations, covariance with the world market or other risk factors, or performance in adverse economic states of the world. While there is evidence that small markets are subject to larger reversals than large markets, perhaps due to some form of market imperfection, the reversals are not only a small-market phenomenon. The apparent anomaly of winner-loser reversals in national market indices therefore remains unresolved.