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17-11-2011 · Research
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.
Authors
Joop Huij
PhD, Head of Sustainable Index Solutions
Simon Lansdorp
PhD, Portfolio Manager Sustainable Index Solutions
David Blitz
Chief Researcher
Top keywords
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.
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