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Losers Win, Winners Lose: Evidence against Market Efficiency

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  • Zachary Alexander Smith

Abstract

The goal of this research project was to evaluate whether there is statistically significant evidence of the Winner / Loser Phenomenon identified in DeBondt and Thaler (1985) using a unique data set and multiple examination windows. This study finds statistically significant evidence of short-run negative autocorrelation of returns. More importantly, if investors used a daily rebalance over this time period and invested simultaneously in the previous day¡¯s loser ETF and the previous day¡¯s winner ETF they would have obtained Cumulative Abnormal Returns of 113.50% and -134.13%, respectively. In addition, this study supports the experimental research findings documented in Bloomfield, R., Libby, R., and Nelson, M. (1998) and Bloomfield, R. and Hales, J. (2002) by providing evidence that (a) the performance of the market portfolio and the loser portfolio show signs of trending behavior and (b) the loser portfolio shows signs of significant outperformance conditioned upon a negative performance event.

Suggested Citation

  • Zachary Alexander Smith, 2015. "Losers Win, Winners Lose: Evidence against Market Efficiency," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(2), pages 1-10, April.
    • Handle: RePEc:jfr:ijfr11:v:6:y:2015:i:2:p:1-10
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    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/6620/3942
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    References listed on IDEAS

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    1. Stefanescu, Razvan & Dumitriu, Ramona, 2016. "Particularitǎţi ale evoluţiei variabilelor financiare [Some particularities of the financial variables evolution]," MPRA Paper 73481, University Library of Munich, Germany, revised 02 Sep 2016.

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