Returns to Buying Winners and Selling Losers 73 Table II Betas and Market Capitalization of Relative Strength Portfolios The relative strength portfolios are formed based on 6-month lagged returns and held for 6 months.The stocks are ranked in ascending order on the basis of 6-month lagged returns.The equally weighted portfolio of stocks in the lowest past return decile is portfolio Pl,the equally weighted portfolio of stocks in the next decile is portfolio P2,and so on.The betas with respect to the value-weighted index and the average market capitalizations of the stocks included in these portfolios are reported here.The sample period is January 1965 to December 1989. Average Market Beta Capitalization P1 1.36 208.24 P2 1.19 480.07 P3 1.14 545.31 P4 1.11 618.85 P5 1.09 692.89 P6 1.08 702.51 P7 1.09 738.09 P8 1.12 758.87 P9 1.17 680.18 P10 1.28 495.13 P10-P1 -0.08 Additional evidence relating to the extent to which the dispersion in expected returns explains these profits is given in the next section. C.The Serial Covariance of 6-Month Returns This subsection examines the serial covariance of 6-month returns in order to assess the potential contribution of the second and third source of profits from our decomposition.Given the model expressed in (1),the serial covari- ance of an equally weighted portfolio of a large number of stocks is:8 cov(,1)=b2Cov(f,f-1). (4) If the source of relative strength profits is the serial covariance of factor- related returns then,from the above expression,the in-sample serial covari- ance of the equally weighted index returns is required to be positive.How- ever,we find that the serial covariance of 6-month returns of the equally weighted index is negative (-0.0028)which,from the decomposition in expression(3),reduces the relative strength profits.This result indicates that the serial covariance of factor portfolio returns is unlikely to be the source of relative strength profits. 8The contribution of the serial covariances of eit to the serial covariance of the equally weighted index becomes arbitrarily small as the number of stocks in the index becomes arbitrarily large