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

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

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
• Electronic ISSN: 1873-1309
• 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