Hot and Cold Strategies: Australian Evidence

Vikash Ramiah (), Tafadzwa Mugwagwa () and Tony Naughton
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Vikash Ramiah: School of Economics, Finance and Marketing, RMIT University, Level 12, 239 Bourke Street, Melbourne, Australia, 3000, Australia
Tafadzwa Mugwagwa: School of Economics, Finance and Marketing, RMIT, GPO Box 2476V, Melbourne, 3001, Australia

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2011, vol. 14, issue 02, 271-295

Abstract: The main purpose of this paper is to explore a high-frequency tactical asset allocation strategy. In particular, we investigate the profitability of momentum trading and contrarian investment strategies for equities listed on the Australian Stock Exchange (ASX). In these two strategies we take into consideration the short-selling restrictions imposed by the ASX on the stocks used. Within our sample portfolios we look at the relationship between stock returns and past trading volume for these equities. This research also investigates the seasonal aspects of contrarian portfolios and observes weekly, monthly and yearly effects. We report significant contrarian profits for the period investigated (from 2001 to 2006) and show that contrarian profit is a persistent feature for the strategies examined. We also document that contrarian portfolios earn returns as high as 6.54% per day for portfolios with no short-selling restrictions, and 4.71% in the restricted model. The results also support the view that volume traded affects stock returns, and show that market imperfections such as short-selling restrictions affect investors' returns.

Keywords: Contrarian; momentum; turnover ratio; past returns; short-selling; seasonality; market imperfections (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2011
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091511002251

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