We would like to thank John Doukas, an anonymous referee, and the participants of the 2001 EFMA Meeting in Switzerland for their very helpful comments. We also thank George Philippatos, Gregory Koutmos, Phil Holmes, Krishna Paudyal and Gioia Pescetto for comments and suggestions on earlier versions. Financial support from INQUIRE UK is gratefully acknowledged. Corresponding author: A Antoniou.
Contrarian Profits and the Overreaction Hypothesis: the Case of the Athens Stock Exchange
Version of Record online: 12 JAN 2005
European Financial Management
Volume 11, Issue 1, pages 71–98, January 2005
How to Cite
Antoniou, A., Galariotis, E. C. and Spyrou, S. I. (2005), Contrarian Profits and the Overreaction Hypothesis: the Case of the Athens Stock Exchange. European Financial Management, 11: 71–98. doi: 10.1111/j.1354-7798.2005.00276.x
- Issue online: 12 JAN 2005
- Version of Record online: 12 JAN 2005
- delayed reaction;
- contrarian profits;
- multifactor models;
- emerging stock markets
This paper investigates the existence of contrarian profits and their sources for the Athens Stock Exchange (ASE). The empirical analysis decomposes contrarian profits to sources due to common factor reactions, overreaction to firm-specific information, and profits not related to the previous two terms, as suggested by Jegadeesh and Titman (1995). Furthermore, in view of recent evidence that common stock returns are related to firm characteristics such as size and book-to-market equity, the paper decomposes contrarian profits to sources due to factors derived from the Fama and French (1993, 1996) three-factor model. For the empirical testing, size-sorted sub-samples that are rebalanced annually are employed, and in addition, adjustments for thin and infrequent trading are made to the data. The results indicate that serial correlation is present in equity returns and that it leads to significant short-run contrarian profits that persist even after we adjust for market frictions. Consistent with findings for the US market, contrarian profits decline as one moves from small stocks to large stocks, but only when market frictions are considered. Furthermore, the contribution to contrarian profits due to the overreaction to the firm-specific component appears larger than the underreaction to the common factors.