This paper documents strong evidence of intra-industry return reversals. A contrarian strategy of buying loser stocks and selling winner stocks based on relative performance within the industry generates a significant return of 1.5 percent per month. These intra-industry return reversals are different from the unconditional contrarian profits in several ways. The intraindustry reversals are robust to adjustments to market microstructure biases and more pervasive across stocks that differ by market capitalization, liquidity and idiosyncratic volatility. We show that extreme past stock performance that are not relative industry losers and winners do not exhibit short-term reversals, but exhibit significant return momentum. We also find that the intraindustry reversal is independent of the across-industry momentum. A simple zero-investment trading strategy that capitalizes on both the intra-industry reversals and across-industry momentum produces a large 2.3 percent return per month. While the intra-industry reversals are less likely to be due to investor overreaction to firm-specific information, our evidence points to differences in liquidity level, and exposure to liquidity shocks as the likely source of the reversals.

the investment and profitability factor returns. a