The authors show that short-run reversals vary with different aspects of stock-level liquidity. In particular, higher volatility yields stronger, initially faster reversals while lower turnover yields more persistent, eventually stronger reversals.
Read the Complete Article in the
Financial Analysts Journal
CFA Institute Member Content
In Practice Member Companion
Read Brief
CFA Institute Member Content
Hear from two of the authors
Publish in the Financial Analysts Journal
Interested in having your article published in the Financial Analysts Journal? Find out how.
Abstract
Different aspects of liquidity impact the performance of short-run reversals in different ways, consistent with the predictions of microstructure models. Higher volatility is associated with faster, initially stronger reversals, while lower turnover is associated with more persistent, ultimately stronger reversals. These facts also hold outside the US and explain several seemingly disparate results in the literature.