Reversals and the Returns to Liquidity Provision

Dai, Wei; Medhat, Mamdouh; Novy-Marx, Robert; Rizova, Savina

doi:10.2139/ssrn.4339591

Download This Paper

Open PDF in Browser

Add Paper to My Library

Reversals and the Returns to Liquidity Provision

64 Pages Posted: 27 Jan 2023

See all articles by Wei Dai

Robert Novy-Marx

Simon Business School, University of Rochester; National Bureau of Economic Research (NBER)

Savina Rizova

Dimensional Fund Advisors

There are 2 versions of this paper

Date Written: January 26, 2023

Abstract

Different aspects of liquidity impact the performance of short-run reversals in different ways, consistent with the predictions of microstructure models. Higher volatility is associated with faster, initially stronger reversals, while lower turnover is associated with more persistent, ultimately stronger reversals. These facts also hold outside the US and explain several seemingly disparate
results in the literature.

Keywords: Liquidity, reversals, momentum, volatility, turnover

JEL Classification: G10, G12

Suggested Citation: Suggested Citation

Dai, Wei and Medhat, Mamdouh and Novy-Marx, Robert and Rizova, Savina, Reversals and the Returns to Liquidity Provision (January 26, 2023). Available at SSRN: https://ssrn.com/abstract=4339591 or http://dx.doi.org/10.2139/ssrn.4339591