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Reversals and the Returns to Liquidity Provision

Author

Listed:
  • Wei Dai
  • Mamdouh Medhat
  • Robert Novy-Marx
  • Savina Rizova

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.

Suggested Citation

  • Wei Dai & Mamdouh Medhat & Robert Novy-Marx & Savina Rizova, 2023. "Reversals and the Returns to Liquidity Provision," NBER Working Papers 30917, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30917
    Note: AP
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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