Risk‐Adjusted Long‐Term Contrarian Profits: Evidence from Non‐S&P 500 High‐Volume Stocks

Udomsak Wongchoti () and Chong Soo Pyun

The Financial Review, 2005, vol. 40, issue 3, 335-359

Abstract: Can trading volume help unravel the long‐term overreaction puzzle? With portfolios of non‐S&P 500 NYSE stocks, we show that (1) both the high‐ and low‐volume (abnormal volume) contrarian portfolios earn a much higher market‐adjusted excess return than the normal‐volume contrarian portfolio, (2) however, when leverage‐induced risk is factored in, excess returns from contrarian portfolios with normal‐ and low‐volume stocks are insignificant, (3) only excess returns from high‐volume contrarian stocks are significant and cannot be explained by the time‐varying risk and return framework, and (4) such high‐volume, risk‐adjusted excess returns arise mainly from winner (glamour) stocks.

Date: 2005
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