Co-existence of short-term reversals and momentum in the Australian equity market

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

Small stocks tend to reverse, whereas large stocks tend to trend over a one-month horizon, which explains the lack of short-term reversals in the Australian market as a whole. However, large stocks exhibit intra-industry reversals, in which industry winners underperform industry losers in the subsequent month, when controlling for price momentum. Conversely, once this intra-industry reversal is neutralised, large stocks display momentum behaviour, in which market winners outperform market losers. These conditional strategies generate positive, significant risk-adjusted returns on large stocks in Australia. This paper documents significant industry momentum, as winning industries outperform losing industries in the following month. This industry momentum effect dominates the intra-industry reversal. The paper also finds evidence that conditional reversals are driven by illiquidity and are inhibited by stock prices under-reacting to earnings announcements.

Original languageEnglish
Pages (from-to)55-76
Number of pages22
JournalAustralian Journal of Management
Volume41
Issue number1
DOIs
Publication statusPublished - 1 Feb 2016

Keywords

  • Industry momentum
  • liquidity
  • momentum
  • short-term reversals

Cite this

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Co-existence of short-term reversals and momentum in the Australian equity market. / Chai, Daniel; Do, Binh.

In: Australian Journal of Management, Vol. 41, No. 1, 01.02.2016, p. 55-76.

Research output: Contribution to journalArticleResearchpeer-review

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