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Industries and Stock Return Reversals

Published online by Cambridge University Press:  14 July 2014

Allaudeen Hameed  and
G. Mujtaba Mian
Allaudeen Hameed*
Affiliation:
[email protected], Business School, National University of Singapore, Singapore 117592, Singapore
G. Mujtaba Mian
Affiliation:
[email protected], School of Accounting and Finance, Hong Kong Polytechnic University, Kowloon, Hong Kong.
*
*Corresponding author: [email protected]
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Abstract

This paper documents pervasive evidence of intra-industry reversals in monthlyreturns. Unlike the conventional reversal strategy based on stock returnsrelative to the market portfolio, we document intra-industry return reversalsthat are larger in magnitude, consistently present over time, and prevalentacross subgroups of stocks, including large and liquid stocks. These returnreversals are driven by order imbalances and noninformational shocks. Consistentwith reversals representing compensation for supplying liquidity, intra-industryreversals are stronger following aggregate market declines and volatile times,reflecting binding capital constraints and limited risk-bearing capacity ofliquidity providers.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 50 , Issue 1-2 , April 2015 , pp. 89 - 117
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2014 

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