Short-Term Reversals: The Effects of Past Returns and Institutional Exits

Si Cheng; Allaudeen Hameed; Avanidhar Subrahmanyam; Sheridan Titman

doi:10.1017/s0022109016000958

Journal of Financial and Quantitative Analysis Vol. 52 No. 1 2017

Short-Term Reversals: The Effects of Past Returns and Institutional Exits

Si Cheng^{1,2,3,4,5,6,7,8}; Allaudeen Hameed^{1,2,3,4,5,6,7,8}; Avanidhar Subrahmanyam^{1,2,3,4,5,6,7,8}; Sheridan Titman^{1,2,3,4,5,6,7,8}

¹ California State University, Fullerton · ² University of California, Los Angeles · ³ National University of Singapore · ⁴ Chinese University of Hong Kong · ⁵ Hong Kong University of Science and Technology · ⁶ University of Missouri · ⁷ The University of Texas at Austin · ⁸ University of Hong Kong

open access

Abstract

Price declines over the previous quarter lead to stronger reversals across the subsequent 2 months. We explain this finding based on the dual notions that liquidity provision can influence reversals and that agents who act as de facto liquidity providers may be less active in past losers. Supporting these observations, we find that active institutions participate less in losing stocks and that the magnitude of monthly return reversals fluctuates with changes in the number of active institutional investors. Thus, we argue that fluctuations in liquidity provision with past return performance account for the link between return reversals and past returns.

DOI: 10.1017/s0022109016000958
Volume: 52
Issue: 1
Pages: 143-173
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Short-Term Reversals: The Effects of Past Returns and Institutional Exits

Abstract

Cite