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

Daniel Chai, Binh Do

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)


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
Issue number1
Publication statusPublished - 1 Feb 2016


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

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