Abstract
Studies focusing on the U.S. stock markets argue that the short-term reversal is related to liquidity provision. We test the implications of the theory of liquidity provision to investigate the profitability of reversal trading strategies in the Chinese markets. We find highly robust and puzzling patterns that are mainly inconsistent with findings in the U.S. markets and liquidity provision. There is a momentum based on the most recent day instead of reversal, only few specific days drive the profitability of the reversal strategies, and even these profits do not depend on liquidity constraints as liquidity provision theory implies.
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