Volume-Gated VWAP Dislocation Reversal

What the evidence supports

The in-sample evidence supports a credible conditional mean reversion profile. Cumulative PnL remained positive across the sample, rolling Sharpe stayed constructive, and turnover behaviour was consistent with an actively refreshed signal rather than passive exposure.

Main limitation

The current evidence does not yet isolate whether the edge comes uniquely from VWAP dislocation itself. Part of the performance may still reflect broader short-term reversal, liquidity effects, or elevated volatility regimes rather than the intended execution-imbalance mechanism alone.

Falsification logic

The thesis weakens if the signal loses most of its strength after controlling for generic reversal effects, simple volume sorting, or volatility-driven dislocations. It would also weaken if the volume gate adds little value relative to a non-volume-gated VWAP reversal baseline.

Next validation steps

• Compare against a non-volume-gated VWAP reversal baseline.
• Test sensitivity to alternative participation thresholds.
• Evaluate robustness across sectors and sub-universes.
• Review delay and decay sensitivity.
• Assess overlap with generic short-term reversal factors.

Bottom line

This note documents a disciplined and economically interpretable conditional signal. The next research step is not broader storytelling, but tighter validation of whether abnormal participation genuinely improves the tradability of VWAP dislocations.