Post by Sapphire Capital on Sept 3, 2011 4:24:27 GMT 4
Short-Term Residual Reversal
David Blitz
Robeco Asset Management - Quantitative Strategies
Joop Huij
Rotterdam School of Management, Erasmus University; Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)
Simon D. Lansdorp
Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute
Marno Verbeek
Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM) ; Netspar
August 17, 2011
Abstract:
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. 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.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1911449_code696302.pdf?abstractid=1911449&mirid=2
David Blitz
Robeco Asset Management - Quantitative Strategies
Joop Huij
Rotterdam School of Management, Erasmus University; Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)
Simon D. Lansdorp
Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute
Marno Verbeek
Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM) ; Netspar
August 17, 2011
Abstract:
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. 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.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1911449_code696302.pdf?abstractid=1911449&mirid=2