A Glass half full: Contrarian trading in the flash crash
نویسنده
چکیده
Stocks with better past returns crash more than other stocks on May 6, 2010. I find evidence that this is related to such stocks being unattractive to contrarian buyers. This suggests the importance of contrarian investors in stabilizing price fluctuations. However, the glass is half full---that the contrarian investors shun certain types of stocks limits the extent of price stability that relies heavily on this and other similar types of trading strategies. Stocks with better past returns exhibit more negative coskewness, which holds in almost every month since the 1960s and for past return horizons ranging from one month to three years. This has interesting implications for risk premia associated with short-term reversal, medium-term momentum, and long-run reversal portfolios. 1 First preliminary draft: August 2011. I thank seminar participants at the Shanghai Advanced Institute of Finance for their comments. 2 Email: [email protected]. Address: 421 Uris Hall, 3022 Broadway, New York, NY 10027.
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