Alternative reversal variable

Anh Duy Nguyen

Finance Research Letters, 2020, vol. 33, issue C

Abstract: In constructing a reversal variable, we tend to ignore the strong momentum in individual stock returns. A simple subtraction of the average of the past 12-month return from the previous month return allows us to alleviate the momentum return. Consequently, the reversals are significantly stronger. We also find that market states have a significant impact on reversal profit indirectly through the momentum effect. In the ‘down’ market, when the momentum effect appears weak, the profit of reversal strategy is significantly higher than in the ‘up’ market, when the momentum effect is strong.

Keywords: Asset pricing models; Short-term reversal; Momentum; Anomalies; Market states (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319300856

DOI: 10.1016/j.frl.2019.06.025

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