ROBECO - Mon, 10/23/2023 - 16:24

Reversing the trend of short-term reversal

Has the short-term reversal effect truly vanished? In a new paper, Robeco's Quant Investing research team—Chief Researcher David Blitz, and Senior Researchers Bart van der Grient and Iman Honarvar—continue to explore the complex landscape of short-term reversal strategies. Serving as a sequel to the 2022 publication, "Beyond Fama-French Factors: Alpha from Short-Term Signals," this latest paper addresses growing concerns about the short-term reversal phenomenon.

The team reveals that the strategy can be revived by counteracting its conflicting tendencies with short-term industry and factor momentum. Enhanced reversal strategies offer double the risk-adjusted return and remain effective over time.

The authors also infer that the premium for this strategy likely originates from temporary supply-demand imbalances, positioning investors as liquidity providers, thereby enhancing market efficiency. The insights garnered from this research are incorporated in Robeco's recently introduced Quantum short-term alpha strategy. For an in-depth look at unlocking the secrets of short-term reversal strategies, read the full paper here: Reversing the trend of short-term reversals on SSRN.

Read the Full Paper


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