Reversals and the Returns to Liquidity Provision
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.
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Copy CitationWei Dai, Mamdouh Medhat, Robert Novy-Marx, and Savina Rizova, "Reversals and the Returns to Liquidity Provision," NBER Working Paper 30917 (2023), https://doi.org/10.3386/w30917.
Published Versions
Wei Dai & Mamdouh Medhat & Robert Novy-Marx & Savina Rizova, 2024. "Reversals and the Returns to Liquidity Provision," Financial Analysts Journal, vol 80(2), pages 122-151.
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