The Review of Financial Studies, 2021
68 Pages Posted: 17 Apr 2018 Last revised: 30 Jun 2021
Date Written: May 27, 2021
We document a striking pattern in U.S. and international stock returns: double sorting on the previous month’s return and share turnover reveals significant short-term reversal among low-turnover stocks, whereas high-turnover stocks exhibit short-term momentum. Short-term momentum is as profitable and as persistent as conventional price momentum. It survives transaction costs and is strongest among the largest, most liquid, and most extensively covered stocks. Our results are difficult to reconcile with models imposing strict rationality but are suggestive of an explanation based on some traders underappreciating the information conveyed by prices.
Keywords: Momentum, Reversal, Trading Volume, Bounded rationality
JEL Classification: G12, G14
Suggested Citation: Suggested Citation