In this research paper, authored by Kotaro Miwa from Kyushu University’s Faculty of Economics and named Short-term Return Reversals and Intraday Day Transaction, the investigation centers around the question of whether short-term return reversals can be attributed to past intraday or overnight price movements in financial markets.
The study reveals a distinctive pattern in the findings: intraday returns exhibit significant reversals in the week following their occurrence, while overnight returns do not display this reversal behavior. This insight suggests that short-term return reversals are primarily linked to past intraday price movements.
Furthermore, the research sheds light on various factors influencing the reversal of intraday returns. Notably, the strength of this reversal is more prominent for stocks with lower liquidity and during periods of higher market volatility.
Intriguingly, the reversal does not seem to be influenced by fundamental news. This observation supports the idea that short-term reversals are primarily a result of price adjustments made by liquidity providers to accommodate intraday uninformed transactions, rather than being driven by intraday price reactions to fundamental information.
Abstract Of Paper
I examine whether a short-term reversal is attributed to past intraday or overnight price movements. The results show that intraday returns significantly reverse in the following week, while overnight returns do not, indicating that the short-term reversal is attributed to past intraday price movements. In addition, the reversal of intraday returns is stronger for more illiquid stocks and during more volatile market conditions, while the reversal is unaffected by fundamental news. This result supports the view that short-term reversals are attributable mainly to price concessions for liquidity providers to absorb intraday uninformed transactions, rather than intraday price reactions to fundamental information.
Original paper – Download PDF
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Author
Kotaro Miwa – Kyushu University – Faculty of Economics
Short-term Return Reversals and Intraday Transaction – Conclusion
In this study, the author, Kotaro Miwa, investigates the causes of short-term return reversals in financial markets. The research finds that these reversals are primarily attributed to past intraday price movements rather than overnight price changes. Specifically, intraday returns tend to significantly reverse in the following week, while overnight returns do not exhibit the same pattern.
The strength of this reversal effect is more pronounced for less liquid stocks and in more volatile market conditions, suggesting that it is related to liquidity provision rather than reactions to fundamental news.
This research sheds light on the dynamics of short-term reversals in financial markets and underscores the importance of understanding intraday price movements and liquidity considerations when analyzing short-term return patterns.
Short-term Return Reversals and Intraday Transaction – FAQ:
Q1: What is the main focus of the research paper “Short-Term Return Reversals and Intraday Transactions” by Kotaro Miwa?
A1: The research paper by Kotaro Miwa investigates the causes of short-term return reversals in financial markets. It specifically examines whether these reversals are attributed to past intraday or overnight price movements.
Q2: What are the key findings of the study regarding short-term return reversals?
A2: The study reveals that short-term return reversals are primarily linked to past intraday price movements. Intraday returns tend to significantly reverse in the week following their occurrence, while overnight returns do not display this reversal behavior.
Q3: What factors influence the strength of the reversal of intraday returns, according to the research paper?
A3: The research paper notes that the strength of the reversal of intraday returns is more pronounced for stocks with lower liquidity and during periods of greater market volatility. Surprisingly, this reversal is not influenced by fundamental news. These findings support the idea that short-term reversals result from price adjustments made by liquidity providers to accommodate intraday uninformed transactions, rather than being driven by intraday price reactions to fundamental information.
