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

Lee, Darren D., Chan, Howard, Faff, Robert W. and Kalev, Petko S. (2003) Short-term contrarian investing: is it profitable? … Yes and No. Journal of Multinational Financial Management, 13 4-5: 385-404. doi:10.1016/S1042-444X(03)00017-3

Author Lee, Darren D.
Chan, Howard
Faff, Robert W.
Kalev, Petko S.
Title Short-term contrarian investing: is it profitable? … Yes and No
Journal name Journal of Multinational Financial Management   Check publisher's open access policy
ISSN 1042-444X
Publication date 2003-12
Sub-type Article (original research)
DOI 10.1016/S1042-444X(03)00017-3
Volume 13
Issue 4-5
Start page 385
End page 404
Total pages 20
Place of publication Binghamton, N.Y., U.S.A.
Publisher Haworth Press
Language eng
Subject 15 Commerce, Management, Tourism and Services
1502 Banking, Finance and Investment
Abstract In this paper we investigate short-term contrarian investment strategies in the Australian stock market using weekly data of those stocks comprising the All Ordinaries Index during the period 1994–2001. We find both the (Rev. Financ. Stud. 3 (1990) 175) equal-weighted strategy and a new value-weighted strategy yield statistically significant short-term contrarian profits. Importantly, these observed profits could not be fully explained by measurement errors such as bid–ask bounce or by risk, seasonality or volume. Profits are largely related to firm size with overreaction to firm specific information being the primary source of short-term contrarian profits in Australia. However, when a ‘practical’ short-term contrarian strategy including reasonable transaction costs is implemented, all profits vanish. Thus, while the contrarian approach is not viable as a stand-alone strategy, we argue that it may in fact be value-enhancing when employed as an overlay strategy, particularly in the context of managed funds.
Keyword Short-term contrarian investing
Return reversals
Market efficiency
Market overreaction
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Unknown

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
UQ Business School Publications
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Citation counts: Scopus Citation Count Cited 17 times in Scopus Article | Citations
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Created: Wed, 19 Apr 2006, 19:15:42 EST