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Alternative reversal variable

Author

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  • Anh Duy Nguyen

    (CleRMa - Clermont Recherche Management - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA [2017-2020] - Université Clermont Auvergne [2017-2020])

Abstract

In constructing the reversal variable, we tend to ignore the strong momentum in individual stock returns. A simple subtract the average of past 12-month return from previous month return allows us to alleviate the momentum return. Consequently, the reversals are significantly stronger. We also find that states of market have significant impact on reversal profit indirectly through momentum effect. In down market, when momentum effect appears weak, the profit of reversal strategy is significantly higher than in up market, when momentum effect is strong.

Suggested Citation

  • Anh Duy Nguyen, 2020. "Alternative reversal variable," Post-Print hal-02388743, HAL.
    • Handle: RePEc:hal:journl:hal-02388743
    DOI: 10.1016/j.frl.2019.06.025
    Note: View the original document on HAL open archive server: https://hal.science/hal-02388743
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    References listed on IDEAS

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    Cited by:

    1. Li, Yan & Huo, Jiale & Xu, Yongan & Liang, Chao, 2023. "Belief-based momentum indicator and stock market return predictability," Research in International Business and Finance, Elsevier, vol. 64(C).
    2. Wang, Jun & Song, Xiuna, 2022. "The effect of limited attention and risk attitude on left-tail reversal: Empirical results from a-share data in China," Finance Research Letters, Elsevier, vol. 46(PA).

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    More about this item

    Keywords

    anomalies; market states JEL classification: G12; Asset pricing models; short-term reversal; momentum;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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