Short-term Contrarian Strategies in the London Stock Exchange: Are They Profitable? Which Factors Affect Them?

Antonios Antoniou, Emilios C. Galariotis () and Spyros Spyrou
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Antonios Antoniou: Durham Business School - Durham University
Emilios C. Galariotis: Durham Business School - Durham University

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Abstract: This paper provides evidence on short-term contrarian profits and their sources for the London Stock Exchange. Profits are decomposed to sources due to factors derived from the Fama and French (1996) three-factor model. For the empirical testing, size-sorted sub-samples are used, and adjustments for infrequent trading and bid-ask biases are also made. Results indicate that UK short-term contrarian strategies are profitable and more pronounced for extreme market capitalization stocks. These profits persist even when the sample is adjusted for market frictions, risk, seasonality, and irrespective of whether equally-weighted or value-weighted portfolios are employed. The most important factor that drives contrarian profits appears to be investor overreaction to firm-specific information.

Keywords: Multi-factor models; Overreaction; Delayed reaction; Contrarian profits (search for similar items in EconPapers)
Date: 2006-06
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Citations: View citations in EconPapers (6)

Published in Journal of Business Finance and Accounting, 2006, 33 (5-6), pp.839-867. ⟨10.1111/j.1468-5957.2006.00003.x⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01096022

DOI: 10.1111/j.1468-5957.2006.00003.x

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