The Profitability of Option-Based Contrarian Strategies: An Empirical Analysis

Tafadzwa Mugwagwa, Vikash Ramiah and Imad Moosa

International Review of Finance, 2015, vol. 15, issue 1, 1-26

Abstract: Short-selling restrictions limit investors' opportunities to profit from contrarian strategies in equity markets. We examine the proposition that incorporating options into contrarian strategies constitute a viable alternative to investors when short-selling restrictions are in place. In particular, we combine equities with the call and put options traded on the Australian Stock Exchange to investigate the profitability of contrarian strategies in the hybrid market and options market alone. We assess the practical issues in the execution of these approaches, including testing for the effects of limited liquidity and transaction costs. We also investigate how fundamental factors (such as dividend yield, firm size, book-to-market ratio, earnings per share, price-earnings ratio, value stocks, and market conditions) affect contrarian portfolios. The results show that employing options can enhance the profitability of contrarian strategies under certain market conditions.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1111/irfi.12042 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:irvfin:v:15:y:2015:i:1:p:1-26

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1369-412X

Access Statistics for this article

International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

More articles in International Review of Finance from International Review of Finance Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().