Price Reversals and Price Continuations Following Large Price Movements

40 Pages Posted: 22 Oct 2019 Last revised: 23 Oct 2019

See all articles by Edward Alexander Dyl

Edward Alexander Dyl

University of Arizona

H. Zafer Yuksel

University of Massachusetts

Gulnara R. Zaynutdinova

West Virginia University

Date Written: February 1, 2019

Abstract

We concurrently examine price reversals and price continuations that follow extreme one-day price changes in the period 1986–2015. Consistent with the overreaction and underreaction hypotheses, we find that investors overreact to non-information-based price movements and underreact to public announcements containing firm-specific information. We also find that, consistent with the liquidity hypothesis, smaller firms and firms with lower institutional ownership are more likely to experience price reversals relative to price continuations. The magnitudes of reversals and continuations are also greater for smaller firms and firms with lower institutional ownership. Liquidity improvement following the post-decimalization period led to the reduction in the magnitudes of both, price reversals and continuations. These findings have implications for future debate about underlying reasons of observed price movements and the impact of decimalization on financial markets.

Keywords: Price reversals; Price continuations; Stock liquidity; Decimalization

JEL Classification: G14

Suggested Citation

Dyl, Edward Alexander and Yuksel, H. Zafer and Zaynutdinova, Gulnara R., Price Reversals and Price Continuations Following Large Price Movements (February 1, 2019). Journal of Business Research, Vol. 95, 2019. Available at SSRN: https://ssrn.com/abstract=3468645

Edward Alexander Dyl

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

H. Zafer Yuksel

University of Massachusetts ( email )

100 Morrissey Blvd.
M-5-257
Boston, MA Boston 02125
United States
6172877671 (Phone)

HOME PAGE: http://www.zafer.yuksel.com

Gulnara R. Zaynutdinova (Contact Author)

West Virginia University ( email )

Morgantown, WV 26506
United States

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