Momentum and Reversals in Equity-Index Returns

Author(s): ROBERT CONNOLLY and CHRIS STIVERS

Abstract: We document new patterns in the dynamics between stock returns and trading volume.Specifically,we find substantial momentum(reversals) in consecutive weekly returns when the latter week has unexpectedly high (low) turnover. This pattern is evident in equity indices,index futures, and individual stocks.Similarly, we alse find that the autocorrelation in wquity0index returns is increasing with the unexpected dispersion across the latter week's firm-level returns.Weeks with extreme turnover and dispersion shocks(both high and low) tend to have more macroeconomic news releases.Our findings bear on understanding price formation and the econmic interpretation of turnover and dispersion shocks.

Connolly and Stivers 2003 JF.pdf