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Short-term momentum and reversals, turnover, and a stock’s price-to-52-week-high ratio

Journal of Empirical Finance, ISSN: 0927-5398, Vol: 79, Page: 101556
2024
  • 0
    Citations
  • 2,623
    Usage
  • 17
    Captures
  • 1
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    2,623
    • Abstract Views
      2,051
    • Downloads
      572
  • Captures
    17
    • Readers
      16
    • Exports-Saves
      1
      • SSRN
        1
  • Mentions
    1
    • Blog Mentions
      1
      • Blog
        1

Article Description

We show that short-term reversal behavior declines with a stock’s turnover and the prior month’s price-to-52-week-high ratio (PTH), shifting to momentum for stocks with both a relatively high turnover and PTH. This behavior of consecutive one-month individual stock returns is robust to subperiod analysis, risk adjustments, and alternative methodologies. Our findings suggest opposing channels. First, promoting short-term momentum, our evidence implies a PTH-anchoring underreaction to recent news, consistent with the short-term contrarian price-dampening channel of Atmaz et al. (2024) with higher turnover implying a stronger contrarian-induced underreaction. Second, promoting short-term reversals, our evidence reinforces the importance of the well-known liquidity-provision-compensation channel. Reversals are especially strong for low-PTH, low-turnover stocks, where the lower PTH implies a generally smaller-cap, less-liquid stock and the lower turnover implies a weaker contrarian-induced underreaction. We also find that the return behaviors vary with dispersion in analysts’ earnings forecasts and with market-wide sentiment, in a manner consistent with these channels.

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