The team reveals that the strategy can be revived by counteracting its conflicting tendencies with short-term industry and factor momentum. Enhanced reversal strategies offer double the risk-adjusted return and remain effective over time.
The authors also infer that the premium for this strategy likely originates from temporary supply-demand imbalances, positioning investors as liquidity providers, thereby enhancing market efficiency. The insights garnered from this research are incorporated in Robeco's recently introduced Quantum short-term alpha strategy. For an in-depth look at unlocking the secrets of short-term reversal strategies, read the full paper here: Reversing the trend of short-term reversals on SSRN.
