Review of Financial Studies Vol. 3 No. 2 1990
When Are Contrarian Profits Due to Stock Market Overreaction?
Abstract
If returns on some stocks systematically lead or lag those of others, a portfolio strategy that sells “winners” and buys “losers” can produce positive expected returns, even if no stock’s returns are negatively autocorrelated as virtually all models of overreaction imply. Using a particular contrarian strategy we show that, despite negative autocorrelation in individual stock returns, weekly portfolio returns are strongly positively autocorrelated and are the result of important cross-autocorrelations. We find that the returns of large stocks lead those of smaller stocks, and we present evidence against overreaction as the only source of contrarian profits.
- DOI
- 10.1093/rfs/3.2.175
- Volume
- 3
- Issue
- 2
- Pages
- 175-205
- Language
- en
- Sources
- crossref openalex