Abstract

http://ssrn.com/abstract=1911449
 
 

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Short-Term Residual Reversal


David Blitz


Robeco Asset Management - Quantitative Strategies

Joop Huij


Erasmus University - Rotterdam School of Management; Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

Simon D. Lansdorp


Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute

Marno Verbeek


Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar

October 26, 2012


Abstract:     
Conventional short-term reversal strategies exhibit dynamic exposures to the Fama and French (1993) factors. We develop a novel reversal strategy based on residual stock returns that does not exhibit these exposures and consequently earns risk-adjusted returns that are twice as large as those of a conventional reversal strategy. Residual reversal strategies generate statistically and economically significant profits net of trading costs, even when we restrict our sample to large-cap stocks over the post-1990 period. Our results are inconsistent with the notion that reversal effects are the result of trading frictions or non-synchronous trading of stocks and pose a serious challenge to rational asset pricing models.

Number of Pages in PDF File: 50

Keywords: short-term reversal, dynamic risks, residual returns, trading costs, market efficiency

JEL Classification: G11, G12, G14

working papers series





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Date posted: August 18, 2011 ; Last revised: November 1, 2012

Suggested Citation

Blitz, David and Huij, Joop and Lansdorp, Simon D. and Verbeek, Marno, Short-Term Residual Reversal (October 26, 2012). Available at SSRN: http://ssrn.com/abstract=1911449 or http://dx.doi.org/10.2139/ssrn.1911449

Contact Information

David Blitz
Robeco Asset Management - Quantitative Strategies ( email )
Coolsingel 120
Rotterdam, 3011 AG
Netherlands
Joop Huij
Erasmus University - Rotterdam School of Management ( email )
P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
HOME PAGE: http://www.rsm.nl/jhuij
Robeco Quantitative Strategies
Rotterdam, 3011 AG
Netherlands
HOME PAGE: http://www.robeco.com/quant
Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)
P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
Simon D. Lansdorp (Contact Author)
Robeco Quantitative Strategies ( email )
Rotterdam, 3011 AG
Netherlands
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
Tinbergen Institute ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Marno Verbeek
Erasmus University - Rotterdam School of Management ( email )
P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)
HOME PAGE: http://www.rsm.nl/mverbeek
Erasmus Research Institute of Management (ERIM)
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Netspar
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Feedback to SSRN


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