Momentum, contrarian, and the January seasonality

Yaqiong Yao

Journal of Banking & Finance, 2012, vol. 36, issue 10, 2757-2769

Abstract: This paper reexamines the apparent success of two prominent stock trading strategies: long-term contrarian and intermediate-term momentum. The paper demonstrates that long-term contrarian is entirely attributable to the classic January size effect, rather than to investor overreaction, as argued by De Bondt and Thaler (1985). Further, the paper also resolves the Novy-Marx (2011) concern about whether return autocorrelation “is really momentum” by demonstrating that the superior performance of intermediate-term momentum is due to strong January seasonality in the cross-section of returns. The implications are that long-term contrarian must be considered largely illusory, and intermediate-term momentum must take account of annual seasonalities in returns.

Keywords: Momentum; Contrarian; Seasonality; January (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:10:p:2757-2769

DOI: 10.1016/j.jbankfin.2011.12.004

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