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Short-term contrarian profits and the disposition effect

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  • Shen, YuJan
  • Shen, KuanFu

Abstract

This article investigates the role of the disposition effect — the tendency of investors to sell stocks with paper gains early but hold stocks with paper losses for longer — in driving stock price overreaction as well as short-term contrarian profits. Taking the case of the Chinese stock market, we obtain firm-level data from the Taiwan Economic Journal database and consider the A-shares listed on the Shanghai and Shenzhen stock exchanges. Using a rolling portfolio approach, we examine three contrarian strategies. We provide theoretical evidence to argue that the disposition effect could be the major driving force of short-term contrarian profits, and provide empirical evidence from the Chinese stock market to support our argument. Our findings could be of considerable interest to researchers and practitioners interested in the Chinese stock market.

Suggested Citation

  • Shen, YuJan & Shen, KuanFu, 2022. "Short-term contrarian profits and the disposition effect," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321003822
    DOI: 10.1016/j.frl.2021.102380
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    References listed on IDEAS

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    More about this item

    Keywords

    Short-term contrarian profits; Disposition effect; Chinese stock market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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