9Bid-ask spreads can induce negative autocorrelation in the return time series when trades
alternately occur at the bid and ask prices. Nonsynchronous trading causes spurious crosscorrelations
and autocorrelations in stock returns because quoted closing prices are not
equally spaced at 24-hour intervals (see Campbell, Lo, and MacKinlay (1995)). Transaction
costs such as trading fees and short-run capital gains taxes preclude arbitrage strategies that
would mitigate return predictability.