Short-term contrarian investing—is it profitable? … Yes and No

Lee, Darren David; Chan, Howard; Faff, Robert W.; Kalev, Petko S.

doi:10.1016/s1042-444x(03)00017-3

Cited by 29 publications

(46 citation statements)

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“…This is evidenced by the significant return reversals especially in the third and fourth weeks following the news. The results are in line with the findings of Ali et al (2011), Iehara et al (2004 and Lee et al (2003). The loser stocks of same category yield positive returns while the winner stocks exhibit negative but insignificant returns highlighting reversals.…”

Section: Conclusion and Practical Implications 51 Conclusionsupporting

confidence: 91%

“…Conrad (1994) later found that stronger reversals were observed in case of low volume stocks as compared to high volume stocks. Similar results are revealed for the Australian market by Lee et al (2003), emphasizing that the high volume stocks have significantly lower returns as compared to the low volume stocks. Iihara et al (2004) evidenced in their study that the return reversals are more pronounced in case of loser stocks as compared to winner stocks.…”

Section: Review Of Related Literaturesupporting

confidence: 77%

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Stock Market Reactions on Returns and Trading Volume: The Impact of the Global Financial Crisis

Sohail¹,

Rehman²,

Javid³

2017

RECFin

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Objective: This study empirically examines the short term under-and overreaction effect in the Karachi Stock Exchange, Pakistan, in the context of the 2008 Global Financial Crisis considering the period from September 2007 to 2009. Background: Investors' probable reaction to an anticipated or unforeseen event is gaining immense importance in order to understand the complex market behavior. The arrival of good or bad news can tend to bring about a rise or decline in the stock price even if the news does not directly impact company's performance. Method: The sample data for the stock price, trading volume and KSE 100 index are obtained from the Karachi Stock Exchange (KSE) and Securities and Exchange Commission of Pakistan (SECP) websites for the period September 2007 to 2009. To reach our objective, we used event studies. Results: There is evidence of significant overreaction in the first two weeks and significant underreaction in the 12th and 24th week following specifically in the financial sector. For the non-financial sector, the returns stay positive and insignificant for both the winner and loser portfolios thereby negating any evidence of significant overreaction. Contributions: We wants to contribute to the existing literature, testing the under-and overreaction hypothesis in an emerging market. Our study also attempts to draw attention to any evidence of returns reversal in the loser and winner portfolios based on the trading volume. Investors may capitalize on the trading volume information to earn contrarian profits. Keywords: Underreaction; Overreaction; Efficient Market Hypothesis; Event Study; Return Reversals. INTRODUCTIONInvestors' probable reaction to an anticipated or unforeseen event is gaining immense importance in order to understand the complex market behavior. The arrival of good or bad news can tend to bring about a rise or decline in the stock price even if the news does not directly impact company's performance. Such fluctuations in the prices signify certain anomalies that help to understand the irrational behavior of the investors. Therefore, among other possibilities, the market may overall exhibit under reaction or overreaction -a phenomenon that is attributed to the inconsistent investor behavior, which can be associated with events like the international financial crisis. This study attempts to analyze the presence of any such under and overreaction in the short term, in order to better understand the impact and magnitude of 2008 financial crisis, on the Pakistani stock market. It is expected that there was not any severe impact of 2008 crisis on the local economy due to its limited international linkages.The association between stock prices and new information arrival has led towards the development of hypotheses based on the behavioral aspects of investor decision making. For example, the heuristic of anchoring proposes that people often relate themselves to some specific elements or conditions of reference in order to make decisions conveniently. Brown, Harlow, and Tini...

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Section: Conclusion and Practical Implications 51 Conclusionsupporting

confidence: 91%

Section: Review Of Related Literaturesupporting

confidence: 77%

Stock Market Reactions on Returns and Trading Volume: The Impact of the Global Financial Crisis

Sohail¹,

Rehman²,

Javid³

2017

RECFin

View full text Add to dashboard Cite

show abstract

“…3 Most studies find that technical analysis is not profitable once transaction costs are taken into account (e.g., Allen and Karjalainen, 1999;Bessembinder and Chan, 1998;Olson, 2004). However, Corrado and Lee (1992) and Lee, Chan, Faff, and Kalev (2003) point out that technical analysis may still have merit as a value-adding "overlay" strategy to assist investors such as fund managers in better timing the buying or selling of stocks as part of their normal trading activities. Under this scenario the stock trades would have occurred in the normal course of business so the transaction costs are already factored in.…”

Section: Introductionmentioning

confidence: 99%

Does intraday technical analysis in the U.S. equity market have value?

Marshall

Cahan²,

Cahan

2008

Journal of Empirical Finance

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“…In practice, the presence of statistical arbitrage can reduce these autocorrelations, but these possibilities are limited by various transaction costs, so anticorrelations at daily frequencies often remain noticeable [see Jegadeesh and Titman, 1995]. In more recent studies, anticorrelations in returns are evidenced for many "other than US" markets [see Lee et al, 2003]. Our findings add one more possible explanation.…”

Section: Documents De Travail Du Centre D'economie De La Sorbonne -20mentioning

confidence: 68%

Price dynamics in a market with heterogeneous investment horizons and boundedly rational traders

Chauveau

Subbotin²

2013

Journal of Economic Dynamics and Control

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This paper studies the effects of multiple investment horizons and investors' bounded rationality on the price dynamics. We consider a pure exchange economy with one risky asset, populated with agents maximizing CRRA-type expected utility of wealth over discrete investment periods. An investor's demand for the risky asset may depend on the historical returns, so that our model encompasses a wide range of behaviorist patterns. The necessary conditions, under which the risky return can be a stationary iid process, are established. The compatibility of these conditions with different types of demand functions in the heterogeneous agents' framework are explored. We find that conditional volatility of returns cannot be constant in many generic situations, especially if agents with different investment horizons operate on the market. In the latter case the return process can display conditional heteroscedasticity, even if all investors are so-called "fundamentalists" and their demand for the risky asset is subject to exogenous iid shocks. We show that the heterogeneity of investment horizons can be a possible explanation of different stylized patterns in stock returns, in particular, mean-reversion and volatility clustering.Keywords: Asset Pricing, Heterogeneous Agents, Multiple Investment Scales, Volatility Clustering J.E.L. Classification: G.10, G.14. RésuméNousétudions l'effet de multiples horizons d'investissement et de la rationalité limitée des investisseurs sur la dynamique des prix. Dans le cadre d'un modèleà agents hétérogènes, nous introduisons de multipleséchelles d'investissement. Nous trouvons que la volatilité conditionnelle des rendements ne peut pasêtre constante dans de nombreuses situations génériques, en particulier si les agents avec des horizons d'investissement différents opèrent sur le marché. Dans ce dernier cas, le processus de rendements peutêtre hétéroscédastique, même si tous les investisseurs sont "fondamentalistes" mais leur demande de l'actif risqué est soumiseà des chocs iid exogènes. Nous montrons que l'hétérogénéité des horizons d'investissement peutêtre une explication possible de différents faits stylisés, observés pour les rendements des actions et, en particulier, du retourà la moyenne et du clustering de la volatilité.

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Short-term contrarian investing—is it profitable? … Yes and No

Cited by 29 publications

References 30 publications

Stock Market Reactions on Returns and Trading Volume: The Impact of the Global Financial Crisis

Stock Market Reactions on Returns and Trading Volume: The Impact of the Global Financial Crisis

Does intraday technical analysis in the U.S. equity market have value?

Price dynamics in a market with heterogeneous investment horizons and boundedly rational traders

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