Short-term Momentum and Reversals, Turnover, and a Stock's Price-to-52-week-High Ratio

Abstract

We show that short-term reversal behavior declines  with a stock's turnover and the prior month's price-to-52-week-high ratio (PTH), shifting to momentum for stocks with both a relatively high turnover and PTH. This behavior of consecutive one-month individual stock returns is robust to subperiod analysis, risk adjustments, and alternative methodologies.   Our findings suggest opposing channels.  First, promoting short-term momentum, our evidence implies a PTH-anchoring underreaction to recent news, consistent with the short-term contrarian price-dampening channel of Atmaz et al. (2024) with higher turnover implying a stronger contrarian-induced underreaction.  Second, promoting short-term reversals,  our evidence reinforces the importance of the well-known liquidity-provision-compensation channel.  Reversals are especially strong for low-PTH, low-turnover stocks, where the lower PTH implies a generally smaller-cap, less-liquid stock and the lower turnover implies a weaker contrarian-induced underreaction.  We also find that the return behaviors vary with dispersion in analysts' earnings forecasts and with market-wide sentiment, in a manner consistent with these channels.

Keywords: Share Turnover, Price Anchors, Short-term Stock Momentum and Reversals, Price-to-52-week-High Ratio

JEL Classification: G11, G12, G14