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Contrarian and momentum profitability revisited: Evidence from the London Stock Exchange 1964–2005

Galariotis, E.C.; Holmes, P.R.; Ma, X.S.

Authors

E.C. Galariotis

P.R. Holmes

X.S. Ma



Abstract

We provide evidence relating to contrarian and momentum profits for the LSE, using 64 strategies for all 6531 stocks traded from 1964 to 2005. Thorough analysis demands controlling for key potential (contradictory) explanations of the strategies’ profitability which span psychological characteristics (e.g. overreaction/underreaction), excess risk, seasonality, size, and microstructure induced biases. Results provide a measurement of the miscalculations which occur when ignoring survivorship and microstructure biases. Contrarian/momentum profits cannot be explained by seasonality, size, or a single factor risk model. However, the Fama–French three factor model rationalises all contrarian profits. Important differences are found when examining a truncated sample period demonstrating the need to recognise that financial markets can change markedly through time.

Citation

Galariotis, E., Holmes, P., & Ma, X. (2007). Contrarian and momentum profitability revisited: Evidence from the London Stock Exchange 1964–2005. Journal of Multinational Financial Management, 17(5), 432-447. https://doi.org/10.1016/j.mulfin.2007.01.003

Journal Article Type Article
Publication Date 2007-12
Deposit Date Feb 20, 2009
Journal Journal of Multinational Financial Management
Print ISSN 1042-444X
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 17
Issue 5
Pages 432-447
DOI https://doi.org/10.1016/j.mulfin.2007.01.003
Keywords Overreaction, Underreaction, London Stock Exchange.
Public URL https://durham-repository.worktribe.com/output/1570758

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