The Intraday Performance of Contrarian Strategies: Evidence from the Taiwan Stock Exchange

Kuei-Yuan Wang (), Su-Chun Peng () and Yen-Sheng Huang ()
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Kuei-Yuan Wang: Department of Finance, Asia University, 500, Lioufeng Rd., Wufeng, Taichung 413, Taiwan
Su-Chun Peng: Department of Finance, China University of Technology, 56, Sec. 3, Shinglung Rd., Wenshan Chiu, Taipei 116, Taiwan
Yen-Sheng Huang: Department of Business and Management, Ming Chi University, 84, Gungjuan Rd., Taishan, Taipei 243, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2009, vol. 12, issue 04, 655-674

Abstract: This paper examines the intraday performance of contrarian strategies using data from 438 listed stocks on the Taiwan Stock Exchange in 2004. The results indicate significantly positive abnormal returns for the contrarian strategies. For the whole trading day, the contrarian strategies earn an average abnormal return of at least 0.18% for all strategies, and above 0.3% in 24 out of the 36 contrarian strategies prior to transaction costs. Moreover, the contrarian profit increases from a formation period of five minutes to 10 minutes, and then declines toward a longer formation period of 60 minutes. This pattern suggests that price reversals occur around 10 minutes into the formation period. The intraday analysis also indicates that the abnormal returns earned by the contrarian strategies are higher in the opening and the closing intervals than in the middle of the trading day. Finally, the results indicate that price reversals occur for both prior losers and prior winners, with prior winners experiencing larger price reversals than prior losers when the holding period becomes longer. However, the above results of profitable abnormal returns are based on gross returns before transaction costs were deducted. When reasonable explicit trading costs are considered, none of the 36 contrarian strategies produce any "free lunches" for investors.

Keywords: Contrarian strategy; intraday; Taiwan stock market (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091509001794

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