Price reversal and heterogeneous belief
Price reversal and heterogeneous belief
We consider that due to the average belief of investors on a stock changing from bullish (bearish) to bearish (bullish) during an entire reversal process, it is a special characteristic that investors’ beliefs are more heterogeneous during the belief-adjusted period. Therefore, high heterogeneous belief is helpful to capture accurately stock price reversals and lead to stronger short-term reversal effects. We examine the role of the investor heterogeneous belief (HB) on the standard reversal (RVS). Our empirical evidence in the Chinese stock market shows that higher HB results in lower (higher) future returns for past winners (losers); in particular, extremely low HB indicates the absence of subsequent reversal for past winners. Furthermore, we define a new reversal measure of NewRVS and show that NewRVS outperforms RVS. Our regression results confirm that: (1) NewRVS has a stronger impact on future returns than RVS; (2) low HB is related to the absence of reversal or a weak reversal; (2) high HB amplifies the reversal effect.
Cross-sectional returns, Heterogeneous belief, Short-term reversal effect
104-119
Li, Yan
94252da1-8f80-478b-8362-b26fb7bc67f2
Liang, Chao
8f2ac586-77f0-4ad6-bd21-2eee93efebe5
Huynh, Luu Duc Toan
5ce01bb6-0184-49cc-8f34-aae3a1169e47
He, Qiubei
7d288b62-c23b-4002-95d0-8ea5cb84c5c7
November 2022
Li, Yan
94252da1-8f80-478b-8362-b26fb7bc67f2
Liang, Chao
8f2ac586-77f0-4ad6-bd21-2eee93efebe5
Huynh, Luu Duc Toan
5ce01bb6-0184-49cc-8f34-aae3a1169e47
He, Qiubei
7d288b62-c23b-4002-95d0-8ea5cb84c5c7
Li, Yan, Liang, Chao, Huynh, Luu Duc Toan and He, Qiubei
(2022)
Price reversal and heterogeneous belief.
International Review of Economics and Finance, 82, .
(doi:10.1016/j.iref.2022.06.007).
Abstract
We consider that due to the average belief of investors on a stock changing from bullish (bearish) to bearish (bullish) during an entire reversal process, it is a special characteristic that investors’ beliefs are more heterogeneous during the belief-adjusted period. Therefore, high heterogeneous belief is helpful to capture accurately stock price reversals and lead to stronger short-term reversal effects. We examine the role of the investor heterogeneous belief (HB) on the standard reversal (RVS). Our empirical evidence in the Chinese stock market shows that higher HB results in lower (higher) future returns for past winners (losers); in particular, extremely low HB indicates the absence of subsequent reversal for past winners. Furthermore, we define a new reversal measure of NewRVS and show that NewRVS outperforms RVS. Our regression results confirm that: (1) NewRVS has a stronger impact on future returns than RVS; (2) low HB is related to the absence of reversal or a weak reversal; (2) high HB amplifies the reversal effect.
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Accepted/In Press date: 9 June 2022
e-pub ahead of print date: 16 June 2022
Published date: November 2022
Additional Information:
Funding Information:
Toan Luu Duc Huynh acknowledges funding from the University of Economics Ho Chi Minh City (Vietnam) with registered project number 2022-05-02-0968 . The usual disclaimers apply.
Publisher Copyright:
© 2022 Elsevier Inc.
Keywords:
Cross-sectional returns, Heterogeneous belief, Short-term reversal effect
Identifiers
Local EPrints ID: 468477
URI: http://eprints.soton.ac.uk/id/eprint/468477
ISSN: 1059-0560
PURE UUID: 932c3891-59c7-44b9-919e-27483c284f8e
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Date deposited: 16 Aug 2022 16:38
Last modified: 16 Mar 2024 21:11
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Contributors
Author:
Yan Li
Author:
Chao Liang
Author:
Luu Duc Toan Huynh
Author:
Qiubei He
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