Short-term reversal effect: evidence from the Korean stock market

In this study, we investigate the presence of the short-term reversal effect in the Korean stock market. We find that the 1-week reversal is statistically significant, whereas the 1-month reversal is not. By incorporating lottery preference–induced overreaction in the short-term reversal strategy, we observe that the 1-month reversal effect becomes statistically significant only after controlling for lottery-like stocks. Examining the performance of overreaction-induced reversal strategy further by size decomposition, we find stronger return performance among smaller stocks.