17-11-2011 · Research

Short-term residual reversal

Conventional short-term reversal strategies exhibit dynamic exposures to the Fama and French (1993) factors. We develop a novel reversal strategy based on residual stock returns that does not exhibit these exposures and consequently earns risk-adjusted returns that are twice as large as those of a conventional reversal strategy.

    Autoren/Autorinnen

  • Joop Huij - PhD, Head of Sustainable Index Solutions

    Joop Huij

    PhD, Head of Sustainable Index Solutions

  • Simon Lansdorp - PhD, Portfolio Manager Sustainable Index Solutions

    Simon Lansdorp

    PhD, Portfolio Manager Sustainable Index Solutions

  • David Blitz - Chief Researcher

    David Blitz

    Chief Researcher

Residual reversal strategies generate statistically and economically significant profits net of trading costs, even when we restrict our sample to large-cap stocks over the post-1990 period.

Our results are inconsistent with the notion that reversal effects are attributable to trading frictions, liquidity, or non-synchronous trading of stocks and pose a serious challenge to rational asset pricing models.

Read the research paper Short-term residual at SSRN



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