The Sophisticated and the Simple: The Profitability of Contrarian Strategies from a Portfolio Manager's Perspective


  • The authors are grateful for the detailed and constructive comments of two anonymous referees that have helped improve this paper substantially. Comments and research assistance by Rahul Jalan are also greatly appreciated. Any remaining errors are our own. Correspondence: C. Montagu.


Valuation signals have been among the most popular between equity portfolio managers. Given the large variation of techniques and theories with regard to how value is measured, this study investigates the efficacy of alternative value measures. We consider a cross section of simple and sophisticated alternative measures and focus on comparison metrics of primary interest to equity portfolio managers. Our results show that sophisticated valuation models are superior – although not universally – relative to simple valuation models in many respects. Thus, we conclude that sophisticated models have interesting attributes and, in general, should be considered as an additional if not primary perspective on equity valuation and portfolio management.