Price Anchors and Short-Term Reversals
Financial Management, Volume 50, Summer 2021, pp. 425-454.
Posted: 28 Dec 2017 Last revised: 14 Jun 2021
Date Written: February 24, 2020
Abstract
We find that price anchors have a role in understanding short-run reversals in 1-month (1 M) stock returns in conjunction with the well-known liquidity provision channel. Specifically, we determine that 1 M reversal strategies perform much better for stocks that have (a) a low price relative to their 52-week high (George and Hwang) and (b) a low capital gains overhang (Grinblatt and Han). Further, we uncover striking asymmetries in the reversal behavior between past winners and past losers depending upon the stock's price relative to the price reference points. These reversal asymmetries fit with the hypothesized price anchoring biases.
Keywords: Short-run Stock Reversals, 52-Week Price-to-High, Capital Gains Overhang, Disposition Effect, Liquidity Provision
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation