The long-run reversal in the long run: Insights from two centuries of international equity returns

We perform the most comprehensive test of long-term reversal in national equity indices ever done. Having examined data from 71 countries for the years 1830 through 2019, we demonstrate a strong reversal pattern: the past long-term return negatively predicts future performance. The phenomenon is not subsumed by other established cross-sectional return patterns, including the value effect. The long-term reversal is robust to many considerations but highly unstable through time. Finally, our findings support the overreaction explanation of this anomaly.

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We perform the most comprehensive test of long-term reversal in national equity indices.

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We examine data from 71 countries for the years 1830 through 2019.

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The effect is strong, but highly unstable through time.

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The phenomenon is not a manifestation of other return drivers, including the value effect.

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Our findings support the overreaction explanation of this anomaly.