Corporate investment, short-term return reversal, and stock liquidity

This study establishes a link between corporate investment and short-term return reversal by addressing the role of corporate investment in shaping stock liquidity. We find that short-term return reversal is less pronounced for stocks with high corporate investment. Moreover, the analysis shows that...

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Bibliographic Details
Published in:Journal of financial markets (Amsterdam, Netherlands) Netherlands), 2018-06, Vol.39, p.68-83
Main Authors: Kang, Moonsoo, Khaksari, S., Nam, Kiseok
Format: Article
Language:English
Subjects:
Corporate investment
Short-term reversal
Stock liquidity
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Summary:This study establishes a link between corporate investment and short-term return reversal by addressing the role of corporate investment in shaping stock liquidity. We find that short-term return reversal is less pronounced for stocks with high corporate investment. Moreover, the analysis shows that corporate investment indeed attenuates the short-term return reversal effect regardless of other control variables. We argue that the current finding is attributable to the effect of corporate investment on the risk of a stock through which corporate investment improves stock liquidity and eventually leads to weaker short-term return reversal. •This study establishes a link between corporate investment and short-term return reversal.•We find that short-term return reversal is less pronounced for stocks with high corporate investment.•Moreover, corporate investment attenuates the short-term return reversal effect regardless of other control variables.•Corporate investment decreases the risk of a stock, improves stock liquidity, and weakens short-term return reversal.
ISSN:1386-4181
1878-576X
DOI:10.1016/j.finmar.2018.02.001