Contrarian profits and the overreaction hypothesis: The case of the Athens Stock Exchange

Antoniou, A.; Galariotis, E.C.; Spyrou, S.I.

Abstract

This paper investigates the existence of contrarian profits and their sources for the Athens Stock Exchange (ASE). The empirical analysis decomposes contrarian profits to sources due to common factor reactions, overreaction to firmspecific information, and profits not related to the previous two terms, as suggested by Jegadeesh and Titman (1995). Furthermore, in view of recent evidence that common stock returns are related to firm characteristics such as size and booktomarket equity, the paper decomposes contrarian profits to sources due to factors derived from the Fama and French (1993, 1996) threefactor model. For the empirical testing, sizesorted subsamples that are rebalanced annually are employed, and in addition, adjustments for thin and infrequent trading are made to the data. The results indicate that serial correlation is present in equity returns and that it leads to significant shortrun contrarian profits that persist even after we adjust for market frictions. Consistent with findings for the US market, contrarian profits decline as one moves from small stocks to large stocks, but only when market frictions are considered. Furthermore, the contribution to contrarian profits due to the overreaction to the firmspecific component appears larger than the underreaction to the common factors.

Citation

Antoniou, A., Galariotis, E., & Spyrou, S. (2005). Contrarian profits and the overreaction hypothesis: The case of the Athens Stock Exchange. European Financial Management, 11(1), 71-98. https://doi.org/10.1111/j.1354-7798.2005.00276.x

• Journal Article Type: Article
• Publication Date: 2005-01
• Deposit Date: Aug 27, 2008
• Journal: European Financial Management
• Print ISSN: 1354-7798
• Electronic ISSN: 1468-036X
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 11
• Issue: 1
• Pages: 71-98
• DOI: https://doi.org/10.1111/j.1354-7798.2005.00276.x
• Public URL: https://durham-repository.worktribe.com/output/1631136