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Yes, it works for your horse and pretty sure on you character as well. But usually my armor weighs me down so much that I don't tend to keep items on me for very long.
If i remember correctly, things will loose the red hand after a couple of days because people have forgotten it. An ingame tip also stated that if you try to sell stolen goods in small quantities, people won't notice but if you sell something valuable and there was a lot of thievery in the region that people would notice.
I mean it makes sense. If someone went to the pub all like "oh man, this golden mega-sword with diamonds on the hilt was stolen" and tells everyone and you then walk up to a merchant the next day and go like "I *found* this golden mega-sword with diamonds on the hilt. gimme money" the merchant would get suspicious.
But if you steal a potatoe and sell it, the merchant probably won't notice because potatoes are all over the place and this could be *any* potatoe.
And eventually people will just forget that something was stolen. My guess is, the duration is just different depending on what you stole.