The paper analyzes the relationship between the bid-ask spread and stock short-run return reversals in individual stocks. This paper extends the assumption that the “true” price remains constant or follows random walk. Contrasted paths of observed price and “true” price between successive time periods, and adjacent period joint distribution of observed price change and the “rue” price change in three cases, we analyze the impact of the bid-ask bounce on the return reversal. The results show, the bid-ask spread is the only reason for stock observed return reversal when the first order autocorrelation coefficient of the stock “true” return is close to 0; the role of the bid-ask spread on observed return reverse is not obvious and may even weaken the reverse when the “true” return has a strong negative first order autocorrelation; the bid-ask spread intensify the volatility of observed return. Based on the identity relation between bid-ask spread and stock return, we establish the return decomposition model to isolate the “true” return from the observed return, and cross section regression and variance-ratio test are adopted to support these conclusions using individual stocks daily, weekly and monthly data in NASDAQ market respectively.