Co-Existence of Short-Term Reversals and Momentum in the Australian Equity Market

Posted: 29 Jan 2016

See all articles by Daniel Chai

Daniel Chai

Monash University

Binh Huu Do

Monash University; Financial Research Network (FIRN)

Date Written: February 1, 2016


Small stocks tend to reverse, whereas large stocks tend to trend over a one-month horizon, which explains the lack of short-term reversals in the Australian market as a whole. However, large stocks exhibit intra-industry reversals, in which industry winners underperform industry losers in the subsequent month, when controlling for price momentum. Conversely, once this intra-industry reversal is neutralised, large stocks display momentum behaviour, in which market winners outperform market losers. These conditional strategies generate positive, significant risk-adjusted returns on large stocks in Australia. This paper documents significant industry momentum, as winning industries outperform losing industries in the following month. This industry momentum effect dominates the intra-industry reversal. The paper also finds evidence that conditional reversals are driven by illiquidity and are inhibited by stock prices under-reacting to earnings announcements.

Keywords: industry momentum, liquidity, momentum, short-term reversals

Suggested Citation

Chai, Daniel and Do, Binh Huu, Co-Existence of Short-Term Reversals and Momentum in the Australian Equity Market (February 1, 2016). Australian Journal of Management, Vol. 41, No. 1, 2016, Available at SSRN:

Daniel Chai (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800

Binh Huu Do

Monash University ( email )

Building 11E
Clayton, Victoria 3800

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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