Reversal returns and expected returns from liquidity provision: Evidence from emerging markets

Hilal Anwar Butt, Kenneth Högholm, Mohsin Sadaqat

Research output: Contribution to journalArticleScientificpeer-review

Abstract

In this study, we document, for a number of emerging markets, that positive returns can be obtained using a short-term reversal strategy. These returns are higher for small and illiquid firms, and highest for more volatile firms. Overall, the reversal strategy-based alphas are significant when accessed through different asset pricing models. Our results provide, however, an important unexplored explanation; the reversal return is higher, irrespective of firm characteristics, when market volatility is high, and pronounced for the stocks that witness higher active investor exits. These findings reconcile with the notion that the reversal returns proxy the expected returns from liquidity provision in adverse times.

Original languageEnglish
Article number100664
Peer-reviewed scientific journalJournal of Multinational Financial Management
Volume59
Number of pages24
ISSN1042-444X
DOIs
Publication statusPublished - 03.2021
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • reversal profits
  • emerging markets
  • asset pricing models
  • market distress
  • investor participation

Areas of Strength and Areas of High Potential (AoS and AoHP)

  • AoS: Financial management, accounting, and governance

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