Short Run Reversal in the Market for Large Stocks

We show that the short-run reversal effect for S&P 500 stocks is significantly enhanced by using concurrent observations of analyst target prices to filter out recent large information based price moves. The resulting return reversal is both economically and statistically significant and of a magnitude not easily explained by analyst related anomalies or by direct transaction costs alone. Moreover, we find strong empirical evidence linking the reversal effect to the occurrence of stock specific liquidity events. Our findings indicate that investors and market makers may require a significant premium for providing immediacy in the short-run, even for the most liquid stocks, thus suggesting the importance of financial frictions in empirical asset pricing.