Short-term momentum and reversals, turnover, and a stock’s price-to-52-week-high ratio

Abstract

We show that short-term reversal behavior declines with a stock’s turnover and the prior month’s price-to-52-week-high ratio (PTH), shifting to momentum for stocks with both a relatively high turnover and PTH. This behavior of consecutive one-month individual stock returns is robust to subperiod analysis, risk adjustments, and alternative methodologies. Our findings suggest opposing channels. First, promoting short-term momentum, our evidence implies a PTH-anchoring underreaction to recent news, consistent with the short-term contrarian price-dampening channel of Atmaz et al. (2024) with higher turnover implying a stronger contrarian-induced underreaction. Second, promoting short-term reversals, our evidence reinforces the importance of the well-known liquidity-provision-compensation channel. Reversals are especially strong for low-PTH, low-turnover stocks, where the lower PTH implies a generally smaller-cap, less-liquid stock and the lower turnover implies a weaker contrarian-induced underreaction. We also find that the return behaviors vary with dispersion in analysts’ earnings forecasts and with market-wide sentiment, in a manner consistent with these channels.