Reversal returns and expected returns from liquidity provision: Evidence from emerging markets

Hilal Anwar Butt, Kenneth Högholm and Mohsin Sadaqat

Journal of Multinational Financial Management, 2021, vol. 59, issue C

Abstract: In this study, we document, for a number of emerging markets, that positive returns can be obtained using a short-term reversal strategy. These returns are higher for small and illiquid firms, and highest for more volatile firms. Overall, the reversal strategy-based alphas are significant when accessed through different asset pricing models. Our results provide, however, an important unexplored explanation; the reversal return is higher, irrespective of firm characteristics, when market volatility is high, and pronounced for the stocks that witness higher active investor exits. These findings reconcile with the notion that the reversal returns proxy the expected returns from liquidity provision in adverse times.

Keywords: Reversal profits; Emerging markets; Asset pricing models; Market distress; Investor participation (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:59:y:2021:i:c:s1042444x20300530

DOI: 10.1016/j.mulfin.2020.100664

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