Short-Term Residual Reversal

50 Pages Posted: 18 Aug 2011 Last revised: 1 Nov 2012

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

Joop Huij

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

Simon Lansdorp

Robeco Sustainable Index Solutions; 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

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

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

JEL Classification: G11, G12, G14

Suggested Citation

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

David Blitz

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
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

Rotterdam, 3014DA
Netherlands

HOME PAGE: http://www.robeco.com/

Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

Simon Lansdorp (Contact Author)

Robeco Sustainable Index Solutions ( 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

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
3,065
Abstract Views
11,852
Rank
7,529
PlumX Metrics