We show that the pattern of short-term negative serial covariances for
stock returns over different return measurement intervals is consiste
nt with the implications of inventory-based market microstructure mode
ls. We develop additional testable implications of these models and do
cument supporting evidence. Our findings indicate that to a large exte
nt the short-horizon return reversals can be explained by dealer-inven
tory-related market microstructure effects. Journal of Economic Litera
ture Classification Numbers: G14, G20. (C) 1995 Academic Press, Inc.