Last month's winners are next month's losers. In his paper Evidence of predictable behaviour of security returns, Narasimhan Jegadeesh reported a strong negative correlation between returns in subsequent months. He examined stock returns in 1934-1987 and found that prior month winners have an average next month return of -1.38%, while the prior month's losers have an average (next month) return of 1.11%. The gap is 2.49%. The author concludes:

The results reliably reject the hypothesis that stock prices follow random walks. The predictability of stock returns can be attributed either to market inefficiency or to systematic changes in expected stock returns.

            <p>Formula:</p>
                

* The share price is adjusted for stock splits, cash dividends, right offerings and spin-offs.