Abstract :
[en] This paper uncovers strong return reversals in the US value weighted stock market index around the last monthly settlement day, T-3, which guarantees liquidity for month-end cash distributions. Similar reversals in market returns around T-3 are documented internationally. The return reversals are stronger in countries where the mutual fund ownership is large, and in the US they have become stronger over time as the mutual fund ownership of stocks has increased. Using data that contains all trades of a subset of institutional investors, we show direct evidence that institutional trading contributes to the market reversals. Finally, we find that in the cross-section of stocks, return reversals around the turn of the month are stronger for stocks more commonly held by mutual funds and for liquid stocks. These market reversals help explain the previously documented abnormally high market returns around the turn of the month.
