Working Paper: NBER ID: w30917
Authors: Wei Dai; Mamdouh Medhat; Robert Novy-Marx; Savina Rizova
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.
Keywords: No keywords provided
JEL Codes: G10; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher volatility (G19) | Faster reversals (C69) |
| Higher volatility (G19) | Stronger reversals (C69) |
| Lower turnover (M51) | More persistent reversals (E32) |
| Lower turnover (M51) | Stronger reversals (C69) |