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Left-tail momentum and right-tail reversal: does trading attenuate or exacerbate the anomaly?

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  • Mingmao Deng
  • Zhiyuan Wang
  • Xiaoyuan Wan

Abstract

The literature documents that both left-tail risk and right-tail risk are negatively related to future stock returns in China, which are referred to as left-tail momentum and right-tail reversal. In this paper, we investigate the effect of investor trading on tail-risk anomalies. Dividing stocks into subsamples based on turnover, we find that both left-tail momentum and right-tail reversal are significant only among high turnover stocks and insignificant among low turnover stocks. The findings suggest that investor trading exacerbates rather than attenuates tail-risk anomalies, supporting behavioural bias as a plausible explanation.

Suggested Citation

  • Mingmao Deng & Zhiyuan Wang & Xiaoyuan Wan, 2026. "Left-tail momentum and right-tail reversal: does trading attenuate or exacerbate the anomaly?," Applied Economics Letters, Taylor & Francis Journals, vol. 33(6), pages 796-800, March.
    • Handle: RePEc:taf:apeclt:v:33:y:2026:i:6:p:796-800
    DOI: 10.1080/13504851.2024.2395463
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