The determinants of quantile autocorrelations: Evidence from the UK

We empirically analyse the cross-sectional determinants of stock return autocorrelations in the UK in different quantiles of conditional return distributions. Autocorrelations in low quantiles are predominantly positive, whereas those in the remaining quantiles are negative. Autocorrelations in different quantiles depend on different sets of firm and trading characteristics: when returns are normal or high, prices react quickly to information, are driven by positive feedback traders, instantaneous news arrivals, and overshoot, trades are predominantly motivated by hedging/liquidity needs, and measured autocorrelations can be biassed by the bid-ask bounce effect and nonsynchronous trading. However, when returns are unusually low, prices are driven by information arriving sequentially and react sluggishly to it, and are influenced by trading on private information and/or negative feedback traders.