Filter rules based on price and volume in individual security overreaction

I present evidence of predictability in a sample constructed to mini mite concerns about time-varying risk premia and market-microstructure effects. I use filter rules on lagged return and lagged volume information to uncover weekly overreaction profits on large-capitalization NYSE and AMEX securities. I find that decreasing-volume stocks experience greater reversals, Increasing-volume stocks exhibit weaker reversals and positive autocorrelation. A real-time simulation of the filter strategies suggests that an investor who pursues the filter strategy with relatively low transaction costs will strongly outperform an investor who follows a buy-and-hold strategy.