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Short-Term Stock Price Reversals May Be Reversed

Author

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  • Andrey Kudryavtsev

    (Economics and Management Department, The Max Stern Yezreel Valley Academic College, Emek Yezreel 19300, Israel)

Abstract

In present study, I explore intraday behavior of stock prices. In particular, I try to shed light on the dynamics of stock price reversals and namely, on the short-term character the latter may possess. For each of the stocks currently making up the Dow Jones Industrial Index, I calculate intraday upside and downside volatility measures, following Becker et al. (2008) and Klossner et al. (2012), as a proxy for reversed overreactions to good and bad news, respectively. I document that for all the stocks in the sample, mean daily returns following the days when a stock's upside volatility measure was higher or equal to its downside volatility measure are higher than following the days when the opposite relationship held, indicating that stock prices display a short-run 'reversals of reversals' behavior following corrected, or reversed, overreactions to news. Furthermore, I construct seven different portfolios built upon the idea of daily adjusting a long position in the stocks that according to 'reversals of reversals' behavior are expected to yield high daily returns, and a short position in the stocks, whose daily returns are expected to be low. All the portfolios yield significantly positive returns, providing an evidence for the practical applicability of the 'reversals of reversals' pattern in stock prices.

Suggested Citation

  • Andrey Kudryavtsev, 2012. "Short-Term Stock Price Reversals May Be Reversed," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 5(3), pages 129-146, December.
    • Handle: RePEc:tei:journl:v:5:y:2012:i:3:p:129-146
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    References listed on IDEAS

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    Cited by:

    1. Andrey Kudryavtsev, 2015. "Informational Content of Open-to-Close Stock Returns," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2015(1), pages 5-17.
    2. Andrey Kudryavtsev, 2013. "Think About Tomorrow Morning: Opening Stock Returns May Show Reversals," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(50), pages 51-64, December.

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    More about this item

    Keywords

    Intraday Stock Prices; Intraday Volatility; Overreaction; Stock Price Reversals; Reactions to News;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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