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Short‐term Contrarian Strategies in the London Stock Exchange: Are They Profitable? Which Factors Affect Them?
Author(s) -
Antoniou Antonios,
Galariotis Emilios C.,
Spyrou Spyros I.
Publication year - 2006
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2006.00003.x
Subject(s) - contrarian , economics , stock exchange , market capitalization , financial economics , capitalization , term (time) , stock (firearms) , econometrics , sample (material) , monetary economics , stock market , finance , mechanical engineering , paleontology , linguistics , philosophy , physics , chemistry , horse , quantum mechanics , chromatography , engineering , biology
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.