Left-tail momentum and right-tail reversal: does trading attenuate or exacerbate the anomaly?

The literature documents that both left-tail risk and right-tail risk are negatively related to future stock returns in China, which are referred to as left-tail momentum and right-tail reversal. In this paper, we investigate the effect of investor trading on tail-risk anomalies. Dividing stocks into subsamples based on turnover, we find that both left-tail momentum and right-tail reversal are significant only among high turnover stocks and insignificant among low turnover stocks. The findings suggest that investor trading exacerbates rather than attenuates tail-risk anomalies, supporting behavioural bias as a plausible explanation.