Short-term reversal effect
factor.formula
Monthly rate of return usually refers to the rate of return in the past month, and the calculation formula is: R_t = (P_t - P_{t-1}) / P_{t-1}, where P_t is the stock price at time t, and P_{t-1} is the stock price at time t-1.
This formula calculates the return of a stock over a single time period (such as one month).
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The stock return at time t (current)
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The stock price at time t (current)
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Stock price at time t-1 (last period)
factor.explanation
The core idea of the short-term reversal effect is that market participants sometimes overreact to short-term information, causing stock prices to deviate from their reasonable value in the short term. When stock prices rise excessively, the market will make corrections, causing prices to fall; conversely, when stock prices fall excessively, the market will also make corrections, causing prices to rise. Therefore, by constructing a short-term reversal strategy, investors can buy stocks that have performed poorly recently and sell stocks that have performed well recently, hoping to make a profit in the process of price reversal. It should be noted that the short-term reversal effect is not always effective, and its effectiveness is affected by many factors such as market liquidity, transaction costs, and market sentiment. In addition, this effect conflicts with the momentum effect of a longer period, and in practical applications, it needs to be considered in combination with other factors.