2010-01: Enhancing Contrarian Strategies: Evidence from Developed Markets Indices (Working paper)

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Author(s)
Malin, Mirela
Bornholt, Graham
Year published
2010
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A problem for contrarian strategies is that short-term continuation can offset long-term return reversal. This paper introduces a method for enhancing contrarian strategies to avoid this problem and applies it to 18 developed markets equity indices. Using recent short-term performance to determine which contrarian indices appear ready to reverse and which do not, we define late stage and early stage contrarian strategies. Late stage strategies are consistently more profitable than both pure contrarian and early stage contrarian strategies. Our subsample results confirm a general weakening in contrarian strategy profitability ...
View more >A problem for contrarian strategies is that short-term continuation can offset long-term return reversal. This paper introduces a method for enhancing contrarian strategies to avoid this problem and applies it to 18 developed markets equity indices. Using recent short-term performance to determine which contrarian indices appear ready to reverse and which do not, we define late stage and early stage contrarian strategies. Late stage strategies are consistently more profitable than both pure contrarian and early stage contrarian strategies. Our subsample results confirm a general weakening in contrarian strategy profitability post-December 1989.
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View more >A problem for contrarian strategies is that short-term continuation can offset long-term return reversal. This paper introduces a method for enhancing contrarian strategies to avoid this problem and applies it to 18 developed markets equity indices. Using recent short-term performance to determine which contrarian indices appear ready to reverse and which do not, we define late stage and early stage contrarian strategies. Late stage strategies are consistently more profitable than both pure contrarian and early stage contrarian strategies. Our subsample results confirm a general weakening in contrarian strategy profitability post-December 1989.
View less >
Copyright Statement
Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
Note
Finance
Subject
G15 - International Financial Markets
G14 - Information and Market Efficiency; Event Studies
Contrarian
Index
Developed markets
MSCI