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Decomposing the reversal effect: Exploring low-to-price and other indicators

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  • Iwanaga, Yasuhiro

Abstract

This study conducts a systematic analysis of the stock market reversal effect using four key indicators: high-to-price, price-to-high, low-to-price, and price-to-low. By applying these indicators to the Japanese stock market, this study evaluates their effectiveness in predicting reversals. The findings indicate that among the four indicators, price-to-low proves to be the most effective. In contrast, high-to-price, which was initially expected to be the strongest in capturing the momentum effect, does not perform as prominently as anticipated. This suggests that the reference price investors should consider may vary depending on market conditions and time periods. Moreover, the effectiveness of the price-to-low strategy becomes even more pronounced during periods of high volatility, highlighting its potential as a valuable investment approach in times of heightened market uncertainty.

Suggested Citation

  • Iwanaga, Yasuhiro, 2025. "Decomposing the reversal effect: Exploring low-to-price and other indicators," Japan and the World Economy, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:japwor:v:76:y:2025:i:c:s0922142525000386
    DOI: 10.1016/j.japwor.2025.101334
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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