Price Reversal and Firm Size in the US Stock Markets, New Evidence

This study investigates the return behaviors of U.S. stocks listed in NYSE, AMEX, NASDAQ and NYSE ARC A from July 1963 to December 2007. Past studies are inconclusive as they either report short term momentum and long term reversal or vise versa or ambiguous trends. This is the first study that reports significant short and long term price reversal of U.S. stocks under some conditions by sorting them first by past return or price ratio and then by market capitalization (2 sorts) instead of what are done by most of the past studies by just sorting stocks by either past return or price ratio (1 sort). We also show that for stocks from the loser, medium or winner groups, small capitalization stocks always significantly outperform large capitalization stocks in the future.