Profitability of Contrarian Strategies: Evidence from the Istanbul Stock Exchange


  • *Bildik (Ph.D.) is Assistant Director of the Stock Market Department at the Istanbul Stock Exchange. Part of this paper was written while he was visiting Graduate School of Business of University of Chicago and Finance Department of DePaul University in the 2003–2004 academic year. The opinions expressed do not necessarily represent those of the Istanbul Stock Exchange. Valuable comments of an anonymous referee, Sheridan Titman, George Constantinides, Tobin Moskowitz, Nejat Seyhun and participants in the Annual Meeting of European Financial Management Association, which was held in London in June 28–30, 2002, and the computational support of Zihni Enli are gratefully acknowledged. Gulay (Ph.D.) is a market supervisor at the Stock Market Department of the Istanbul Stock Exchange and Istanbul.

Recep Bildik
Istanbul Stock Exchange
Istanbul 34467, Turkey


This study examines the momentum and contrarian effects on stock returns in one of the leading emerging markets, which has a unique market structure, with record-high inflation, high volatility, high turnover, low correlation of returns with other exchanges and myopic investors: the Istanbul Stock Exchange (ISE). It also investigates the weak-form efficiency of the stock market by examining the profitability of a number of contrarian strategies based on past returns, size, price, book-to-market and earnings-to-price ratios of stocks in various lengths of formation and holding periods. Our findings show that a self-financing trading strategy, buying past loser stocks and selling past winner stocks generate significant abnormal returns (approximately 15% annually) in ISE. However, these large contrarian profits are for bearing the extra risk of loser stocks similar to the US results. We also find significant price, size, and B/M effects in stock returns. Finally, our results show the continous profitability of contrarian strategies both in very short (starting from 1 month) and in long holding periods (up to 36 months), which appears to be related to country-specific factors.