Bridge over ocean
19 January 2024 Financial Analysts Journal Volume 80, Issue 2

Reversals and the Returns to Liquidity Provision

  1. Wei Dai
  2. Mamdouh Medhat
  3. Robert Novy-Marx
  4. Savina Rizova
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

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.

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.