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Asymmetric Reversals

Author

Listed:
  • Federico Baldi-Lanfranchi
  • Pierre Collin-Dufresne
  • Kent D. Daniel

Abstract

Short-term return reversal is one of the most robust asset-pricing anomalies, and is commonly linked to liquidity provision. We decompose individual firm stock returns into two distinct components: SYS, the component of returns that can be linked to systematic risk and public information releases; and an orthogonal residual RES. The RES component reverses, while the SYS component exhibits continuation. Moreover, the residual reversals are highly asymmetric: positive residual shocks reverse much more slowly than negative shocks. A return factor based on asymmetric idiosyncratic reversal subsumes the idiosyncratic volatility factor and a broad set of other short-horizon anomalies. Our findings suggest that asymmetric idiosyncratic reversal (AIR) is the primary driver of short-term return predictability.

Suggested Citation

  • Federico Baldi-Lanfranchi & Pierre Collin-Dufresne & Kent D. Daniel, 2026. "Asymmetric Reversals," NBER Working Papers 35840, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35840
    Note: AP
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    JEL classification:

    • 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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