Introduction

The short-term reversal is the phenomenon that stocks with relatively low returns over the past month or week earn positive abnormal returns in the following month or week, and stocks with high returns earn negative abnormal returns.

Method

To apply short-term reversal in stocks market, first, we use the universe selection API to pick the stocks with the price higher than 4 and rank those stocks by dollar volume and choose the top 100 stocks as our asset pool. In fine universe selection, the prescreened stocks are sorted by market cap we choose the top 20. To detect the reversal effect, the return is the most straightforward measure of the stock history performance. The RateOfChange indicator is used to calculate the monthly return. We go long on the 10 stocks with the lowest performance in the previous month and go short on the 10 stocks with the greatest performance from the previous month.


Reference

  1. Quantpedia - Short Term Reversal in Stocks