Abstract
This study establishes a link between corporate investment and short-term return reversal by addressing the role of corporate investment in shaping stock liquidity. We find that short-term return reversal is less pronounced for stocks with high corporate investment. Moreover, the analysis shows that corporate investment indeed attenuates the short-term return reversal effect regardless of other control variables. We argue that the current finding is attributable to the effect of corporate investment on the risk of a stock through which corporate investment improves stock liquidity and eventually leads to weaker short-term return reversal.
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