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On the usefulness of the contrarian strategy across national stock markets: A grid bootstrap analysis

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  • Kim, Hyeongwoo

Abstract

This paper statistically evaluates the usefulness of the contrarian investment strategy across the national stock markets of 18 developed countries. The contrarian strategy implicitly assumes that asset prices tend toward a fundamental value path over time. Conventional bootstrap analyses and panel unit root tests are often consistent with such a hypothesis. However, these results might be contaminated by small-sample bias and/or by not controlling cross-section dependence. Correcting for small-sample bias nonparametrically, I find extremely slow mean reversion rates, which provide strong evidence against the usefulness of the contrarian strategy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 16 (2009)
Issue (Month): 5 (December)
Pages: 734-744

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Handle: RePEc:eee:empfin:v:16:y:2009:i:5:p:734-744

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Web page: http://www.elsevier.com/locate/jempfin

Related research

Keywords: Stock index price deviation Median-unbiased estimator Nonparametric grid bootstrap Cross-section dependence;

References

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Citations

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Cited by:
  1. Chen, Shu-Ling & Kim, Hyeongwoo, 2008. "Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets," MPRA Paper 18680, University Library of Munich, Germany, revised Nov 2009.
  2. Kim, Hyeongwoo & Durmaz, Nazif, 2009. "Bias Correction and Out-of-Sample Forecast Accuracy," MPRA Paper 16780, University Library of Munich, Germany.
  3. Hyeongwoo Kim & Deockhyun Ryu, 2013. "Measuring the Speed of Convergence of Stock Prices: A Nonparametric and Nonlinear Approach," Auburn Economics Working Paper Series auwp2013-06, Department of Economics, Auburn University.
  4. Kim, Hyeongwoo & Stern, Liliana V. & Stern, Michael L., 2010. "Half-life bias correction and the G7 stock markets," Economics Letters, Elsevier, vol. 109(1), pages 1-3, October.

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