Dominance of hybrid contratum strategies over momentum and contrarian strategies: half a century of evidence

Kobana Abukari () and Isaac Otchere ()
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Kobana Abukari: Laurentian University
Isaac Otchere: Carleton University

Financial Markets and Portfolio Management, 2020, vol. 34, issue 4, No 4, 505 pages

Abstract: Abstract The possibility of combining the ranking period logic of contrarian (momentum) strategies with the holding period logic of momentum (contrarian) strategies to form hybrid strategies motivates us to evaluate several investment strategies using data on over 2500 stocks from 1956 to 2015. We find that hybrid strategies ranked like contrarian strategies over the long term but held like momentum strategies over the medium term, which we call contratum strategies, outperform momentum and contrarian strategies. A contratum strategy ranked over 60 months and held over 3 months earns a significant monthly hedged return of about 0.7%, compared to standard momentum and contrarian strategies’ respective returns of about 0.6% and 0.4%. We subject our results to several robustness tests and find that the performance of the strategies is not crowded out by other anomalies (e.g., the size effect, January effect), risk, liquidity, volatility or macroeconomic factors.

Keywords: Momentum; Contrarian; Contratum; Momentrian (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11408-020-00363-3

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