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Stock return reversal and continuance anomaly: new evidence from Hong Kong

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Abstract:

Using weekly data, this article conducts a comprehensive analysis and presents new empirical evidences on the short-term stock return reversal and continuance anomaly in the Hong Kong stock market. We confirm that winner stocks behave differently from loser stocks in that the return reversal phenomenon is pervasive within past winner stocks only while past loser stocks tend to show weak return continuance. The arbitrage strategy can earn significantly positive contrarian profits, especially for small firms and illiquid stocks. The anomaly varies across different industries and is also sensitive to the market movement. Despite the existence of the anomaly, our results still in general suggest that the Hong Kong stock market is weak-form efficient because arbitrage trading costs would largely overwhelm the available profits in most cases.

Keywords: G10; G14; market efficiency; return anomaly; return continuance; return reversal; stock returns

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2013.872767

Affiliations: 1: Department of Finance and Decision Sciences, Hong Kong Baptist University, Kowloon Tong, Kowloon, Hong Kong, China 2: Department of Accountancy and Law, Hong Kong Baptist University, Kowloon Tong, Kowloon, Hong Kong, China

Publication date: April 23, 2014

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