Short-Term Reversals, Short-Term Momentum, and News-Driven Trading Activity

62 Pages Posted: 8 May 2019 Last revised: 9 Nov 2020

See all articles by I-Hsuan Ethan Chiang

I-Hsuan Ethan Chiang

University of North Carolina (UNC) at Charlotte

Chris Kirby

UNC Charlotte - Belk College of Business

Ziye Zoe Nie

University of North Carolina (UNC) at Charlotte, Belk College of Business

Date Written: April 1, 2019

Abstract

We find no evidence of monthly return reversals for the top quintile of small- and large-cap stocks ranked by turnover. Indeed, stocks in the top decile of turnover display short-term momentum. We argue these findings arise from a combination of effects. First, short-term reversals stem from short-term liquidity demands. Second, news-driven returns tend to continue rather than reverse. Third, turnover acts as a proxy for both liquidity and news-driven trading activity. The evidence suggests that reversals give way to momentum as turnover increases because high-turnover stocks are more liquid than low-turnover stocks and their returns are more reflective of news-driven trading activity. For example, the correlation between the monthly returns of stocks that announce earnings during the month and their announcement-window returns increases with monthly turnover. Furthermore, sorting stocks into turnover-based portfolios that are rebalanced monthly leads to a disproportionate number of stocks with earnings announcements in the high-turnover portfolios.

Keywords: turnover, information diffusion, liquidity, return continuations, post earnings announcement drift, cross-section of expected returns

JEL Classification: G12

Suggested Citation

Chiang, I-Hsuan Ethan and Kirby, Chris and Nie, Ziye, Short-Term Reversals, Short-Term Momentum, and News-Driven Trading Activity (April 1, 2019). Available at SSRN: https://ssrn.com/abstract=3369648 or http://dx.doi.org/10.2139/ssrn.3369648

I-Hsuan Ethan Chiang

University of North Carolina (UNC) at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

HOME PAGE: http://go.uncc.edu/chiang

Chris Kirby (Contact Author)

UNC Charlotte - Belk College of Business ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Ziye Nie

University of North Carolina (UNC) at Charlotte, Belk College of Business ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
129
Abstract Views
962
rank
269,030
PlumX Metrics