Abstract
AbstractWe find that price anchors have a role in understanding short‐run reversals in 1‐month (1 M) stock returns in conjunction with the well‐known liquidity provision channel. Specifically, we determine that 1 M reversal strategies perform much better for stocks that have (a) a low price relative to their 52‐week high (George and Hwang) and (b) a low capital gains overhang (Grinblatt and Han). Further, we uncover striking asymmetries in the reversal behavior between past winners and past losers depending upon the stock's price relative to the price reference points. These reversal asymmetries fit with the hypothesized price anchoring biases.
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