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The purpose of this paper is to study the US stock market and try to explain why short-term contrarian profits have largely disappeared in the past two decades.

In this work, the authors decompose the short-term contrarian profits into cross-sectional variations, firm-level overreactions and lead-lag effects to study the changes in their shares. Then, the authors study the behavior of the subgroups in the winner and loser subportfolios of contrarian investment strategies.

The authors find that short-term contrarian profits have largely vanished since 2000. Changes in the shares of the three components of contrarian profits, which are cross-sectional variations, firm-level overreactions and lead-lag effects, are not the main reason for the disappearance of contrarian profits in the past two decades. Instead, the disappearance of short-term contrarian profits is primarily due to the heterogeneous evolution of subgroups in the portfolio, which leads to a decrease in the overall level of overreactions that drive the contrarian profit.

The work explains the disappearance of short-term contrarian profits in the US stock market.

The purpose of this paper is to assess trading strategies adopted by each large trader group and examine their effects on the volatility in the interest rate futures markets.

The Grinblatt et al.'s (1995) measure of momentum strategy is used to estimate the degree momentum and contrarian strategies. Then, regression analysis is used to determine the effects of trading strategies on volatility.

Up until 2005, the trades by non-clearing member firms in the futures market were separated from institutional traders providing us the opportunity to study trading strategies adopted by large distinct trading groups and its effects on volatility in the futures markets. It is found that individual traders use momentum strategy, whereas market makers and institutional traders use contrarian strategy. Momentum strategy adopted by individual traders increases volatility whereas contrarian strategy dampens volatility. Moreover, it is found that institutional traders engage more actively in contrarian trading when individual traders cause excessive volatility. The two distinct trading groups were separately tracked prior to 2005 giving us a unique window to determine the effect of the traders that conduct momentum trading as opposed to the ones that are contrarian traders. After the reclassification, the institutional trading group exhibited weaker contrarian strategy which can be attributed to the inclusion of non-clearing firm traders.

This study documents the first empirical evidence that shows off-exchange futures trader group is not composed of only pure noise makers, but there are short-term forecasters in its group. The authors also show a unique finding that noises caused by off-exchange group is from momentum strategy that they use, whereas contrarian strategy is used by institutional trader lower volatility.

This paper investigates the behavior of contrarian strategy payoffs under varying degrees of financial liberalization in the context of Asia-Pacific emerging market namely China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines and Thailand for the period 1997–2017. These markets represent economies that display a gradual change in the degree of financial liberalization instead of fully opening their markets to foreign investors at once.

Using a daily dataset of 2,468 firms and four different measures of the degree of financial liberalization, the paper employs portfolio formation, panel regressions and binary modeling methods to reveal the impact of partial and complete financial liberalization on contrarian returns.

This paper documents a negative relationship between the degree of financial liberalization and contrarian strategy payoffs. The results further indicate that small-sized emerging markets reveal more significant and higher contrarian returns as compared to their larger counterparts. Moreover, the returns are significantly higher during negative market states, higher volatility and crises periods. The study findings are consistent with the investor-base broadening hypothesis.

The findings may serve as a useful input for investors and fund managers to devise contrarian investment strategies in emerging market economies. Together, the study provides additional insights for policymakers in managing financial liberalization and integration policies within their respective countries.

This study provides a novel viewpoint by examining the relationship between the degree of financial liberalization and contrarian strategy payoffs. The authors contribute to the existing debate by shifting the discussion to the investor-based broadening argument in which small and less liberalized emerging markets offer opportunities for investors and fund managers to produce abnormal contrarian returns that cannot be earned by other conventional investment strategies.

The purpose of this paper is to investigate whether the interaction between sentiments and past prices can lead to higher abnormal profit in futures markets. Such examinations allow the authors to relate the paper to the debate that focuses on examining the behavior of different types of traders in futures market, and who among these traders destabilize the markets.

First, the authors develop new dynamic strategies in US futures market that combine sentiment by type of traders based on trader position provided by the Disaggregated Commitments of Traders with short-term contrarian signals. Next, the authors adjust the abnormal profits to the CAPM model and Miffre and Rallis’s (2007) model. Finally, the authors use the Du (2012) decomposition methodology.

The main findings are that the abnormal profit is more pronounced when the authors combine past returns with lagged high producer/merchant/processor/user or low managed money sentiment. The results from swap dealer or other reportable groups show that there is no pervasive directional relation between their sentiment and contrarian profit. A further investigation of the sources of abnormal profits demonstrates that these profits survive even after the adjustment of obtained return to risk. Instead, these profits are mainly due to the overreaction to the news by irrational traders.

Based on behavioral finance theories, the authors conclude that producer, merchant, processor and user behave like irrational traders, while managed money traders behave like rational ones. Given that current regulatory proposes the limitation of speculation, the policy implications of these results are important. Therefore, these findings suggest that policy distinctions on trading motives may be more challenging to construct than ever.

This research examines stock traders' disposition effects and contrarian/momentum behavior in the Taiwan Stock Exchange (TWSE). Specifically, we first investigate disposition effects across all trader types and then examine the relationships between disposition effects, trader types, and order characteristics. Next, we explore contrarian and/or momentum behavior and analyze the relationships among the contrarian/momentum behavior, investor type, and order characteristics. Finally, the links among trader types, order characteristics, and investment performance are detected. This chapter yields the following findings. (1) Individual investors exhibit the strongest disposition effects compared to other investors. (2) Foreign investors, investment trusts, and individual investors tend to use large orders to sell loser stocks. (3) Investment trusts are inclined to be momentum traders, while individual investors tend to perform contrarian strategies. (4) Institutional aggressive and large orders perform better than individuals' orders. (5) The performance of foreign investors' selling decisions is better than that of retail investors.

The purpose of this paper is to analyse the impact of industrial diversification on the profitability of contrarian and momentum strategies.

Using monthly returns, the weighted relative strength strategy (WRSS) is applied to 249 American listed stocks from January 1994 to April 2004. To study the impact of the 2000 crash on the results, the WRSS strategy during the 01/1994‐03/2000 and 04/2000‐04/2004 sub‐periods was implemented. Then, firms are classified, according to the intensity of their industrial diversification by Ward's method of hierarchical cluster analysis, into two sub‐samples: the diversified and non‐diversified samples. The WRSS strategy was re‐implemented on these sub‐samples. Finally, the Bootstrap without replacement is used to explore the risk‐based explanation of the trading strategies' profitability.

Results show that the momentum strategy seems to be no more profitable in the recent years. In fact, while momentum strategies earn large positive and significant returns before the 2000 crash, these returns are negative after the crash. Moreover, before the crash, the momentum effect was more pronounced for the non‐diversified sample. After the crash, a contrarian effect more important for this sample was identified. Finally, the Bootstrap without replacement results do not support the risk‐based explanation.

Future research may study the impact of diversification on investor psychology.

Diversified firms are efficiently valued. However, specialized firms are not correctly valued.

This is the first study that shows that contrarian or momentum portfolios formed by industrial diversification did not yield significant return.

The purpose of this study is to investigate the relationship between predictability in return and investment strategy performance. Two measures that characterize investment strategies within a mean‐variance framework, an activity measure and a style measure, are developed and the performance of alternative strategies (e.g. contrarian, momentum, etc.) is examined when risky asset returns are mean reverting.

Returns are assumed to follow a multivariate Ornstein‐Uhlenbeck process, where reversion to a time‐varying mean is governed by an additional variable set, similar to that proposed by Lo and Wang (1995). Depending on its parameterization, this process is capable of producing an autocorrelation pattern consistent with empirical evidence, that is, positive autocorrelation in short‐horizon returns and negative autocorrelation in long‐horizon returns.

The results, for four uninformed investment strategies and assuming that returns are generated by a simple univariate Ornstein‐Uhlenbeck process, show that the unadjusted returns from the contrarian (momentum) strategy are greater than those from the other strategies when the mean reversion parameter, α, is greater than (less than) one. The results are expected, given the relationship between α and the first‐order autocorrelation in returns. The risk level (measured by either the standard deviation of returns or beta) of the contrarian strategy is the lowest at essentially all levels of mean reversion and the risk‐adjusted returns from the contrarian strategy, measured by the both the Sharpe and Treynor ratios, dominate those from the other strategies.

In future research, a number of issues not considered in this study may be investigated. The style measure developed here can be used to determine whether the results obtained hold when an informed, mean‐variance efficient active strategy is employed. In addition, the performance of both the informed and uninformed strategies may be examined under the assumption that the risky return process follows a multivariate Ornstein‐Uhlenbeck process. This work should provide findings that facilitate the separation of fund risk due to dynamic strategies from that due to time‐varying expected returns.

The methodology used here may be easily extended to consider a number of important issues, such as the frequency of portfolio rebalancing, transactions costs, and multiple asset portfolios, that are encountered in practice.

The approach used here provides insight into how predictability affects the relative performance of tactical investment strategies and, thus, may serve as a basis for determining the magnitude and persistence in autocorrelation required for active investment strategies to yield profits significantly different from those of passive strategies. In this sense, this study may have appeal for both academics and investment professionals.

The purpose of this paper is to critically review the literature on contrarian and momentum trading strategies and identify areas for future research.

Critical review and discussion of the literature.

The extant literature is dynamic and is typified by a number of open questions.

The open questions in the literature relate mainly to the driving forces of investment performance, and the role of risk and asset pricing as well as behavioral human traits. The literature is vast and therefore difficult to classify, cover and discuss.

The paper indicates the possible need for: the development of different asset pricing models and propositions that can have practical implications at a more international context.

The paper provides a critical review of the literature and identifies open issues for future research.

Reviews previous research on contrarian investment strategy (i.e. buying “losers” and selling “winners”) and analyses the results of applying the strategy to US stocks 1928‐1992. Explains the methodology and presents the results, which show no statistically significant holding period returns from the strategy, although selling the “winners” is significant. Considers the implications and limitations of the study and calls for further research.

The purpose of the study is to examine overreaction effect in the Chinese stock market after the global financial crisis (GFC) of 2007 for all the stocks listed in Shanghai Stock Exchange (SSE) Composite 50 index.

To capture overreaction effect in the stock listed at SSE 50 Index, a time series analysis of average cumulative abnormal return within a unified framework is applied for the period of January 2009 to December 2015. From these loser and winner portfolios, contrarian strategy is applied to build arbitrage portfolio, which is the difference of mean reversions between loser and winner portfolios. The portfolio construction is based on a 12-month formation period and 6-month testing period for intermediate-term analysis and. for short-term analysis, 6 month formation and 3 month testing periods. The authors also applied regression analysis to test a return reversal effect for the sampled period.

Results show that contrarian strategy yields positive excess returns for the arbitrage portfolio for most of the testing periods. The intermediate baseline case shows the arbitrage portfolio producing an average excess return of 14.1%, while even the short-term one produces 4%, which is statistically significant at the 5% level. The study finds asymmetrical overreactions in the SSE especially for loser portfolios. The biggest winner and loser portfolios follow the mean reversal effect. Moreover, before-after test for the biggest winner and loser portfolios shows that the losers recovered and beat the market immediately.

The study could benefit government, policy makers and regulators by studying how presence of more individual investors than institutional investors of China stock market leads to more irrational decisions giving rise to volatility. The regulators could build favourable policies for institutional investors to give them incentive to invest more than individual investors through which market volatility could be controlled.

This research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. The authors provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.

This research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. We provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.