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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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File URL: http://www.sciencedirect.com/science/article/B6VFG-4WM750C-1/2/1c3ef2d6feb07af68ba1c37723c6a7b5
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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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Cited by:

1. Hyeongwoo Kim & Nazif Durmaz, 2010. "Bias Correction and Out-of-Sample Forecast Accuracy," Auburn Economics Working Paper Series auwp2010-02, Department of Economics, Auburn University.
   
   • Kim, Hyeongwoo & Durmaz, Nazif, 2012. "Bias correction and out-of-sample forecast accuracy," International Journal of Forecasting, Elsevier, vol. 28(3), pages 575-586.
   • Kim, Hyeongwoo & Durmaz, Nazif, 2009. "Bias Correction and Out-of-Sample Forecast Accuracy," MPRA Paper 16780, University Library of Munich, Germany.
2. 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.
3. Shu-Ling Chen & Hyeongwoo Kim, 2011. "Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets," International Economic Journal, Korean International Economic Association, vol. 25(2), pages 239-250.
   
   • 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.

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