McGraw-Hill

68 selecting securities
FIGURE 2-3
Cumulative Return to Beta
16
Our univariate regression provided no evidence of a torpedo
stock effect. The pure effect was present, however, and with th
dicted sign. There was a statistically significant and negative pure
average monthly payoff
10 basis points to higher predicted earnings
growth.
Relative strength paid off handsomely. Its pure return of 34 basis
points per month was strongly significant statistically in the
multivariate regression. Reid's (1982) multifactor model included a
l-year relative-strength measure that was also quite powerful.
Sharpe's (1982) multifactor relative-strength measure, a 60-month
alpha similar to ours, had negative return attribution, perhaps because
of the absence of related measures, such as residual reversal.
Residual reversal turned out be to by far the most powerful effect
we found, especially the in multivariate regression. The t-statis-