They would like to thank George Philippatos, Phil Holmes, Krishna Paudyal and the anonymous referee for comments and suggestions on earlier versions of this paper. Financial support from INQUIRE UK is gratefully acknowledged.
Short-term Contrarian Strategies in the London Stock Exchange: Are They Profitable? Which Factors Affect Them?
Version of Record online: 27 APR 2006
Journal of Business Finance & Accounting
Volume 33, Issue 5-6, pages 839–867, June/July 2006
How to Cite
Antoniou, A., Galariotis, E. C. and Spyrou, S. I. (2006), Short-term Contrarian Strategies in the London Stock Exchange: Are They Profitable? Which Factors Affect Them?. Journal of Business Finance & Accounting, 33: 839–867. doi: 10.1111/j.1468-5957.2006.00003.x
- Issue online: 27 APR 2006
- Version of Record online: 27 APR 2006
- (Paper received August 2003, revised version accepted September 2005)
- delayed reaction;
- contrarian profits;
- multi-factor models
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.