Contrarian profits of the firm-specific component on stock returns

Chae, Joon and Kim, Ryumi,(11 July 2019), Contrarian profits of the firm-specific component on stock returns. , Pacific-Basin Finance Journal, UNSPECIFIED

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A weekly contrarian strategy based on residual stock returns provides larger, more significant, and steadier profits than conventional contrarian strategies, which use total returns. We decompose residual return-based contrarian profits by modifying the decomposition methodology in Lo and MacKinlay (1990). This decomposition reveals that the residual return-based contrarian profits are attributed to negative autocovariances in individual residual returns, rather than positive cross-serial covariances across residual returns. We further decompose Lo and MacKinlay's decomposition, and reveal that winners are strongly negatively autocorrelated. In conclusion, investors' overreactions to good firm-specific news are a primary source of residual contrarian profit
Keywords : Contrarian strategy Residual returns Contrarian profit decomposition Autocovariance Cross-serial covarianc, UNSPECIFIED
Journal or Publication Title: Pacific-Basin Finance Journal
Item Type: Article
Subjects: Manajemen
Depositing User: Yuwono Yuwono
Date Deposited: 19 Dec 2019 09:22
Last Modified: 19 Dec 2019 09:22

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