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Overreaction, Delayed Reaction, and Contrarian Profits

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  • Jegadeesh, Narasimhan
  • Titman, Sheridan

Abstract

This article examines the contribution of stock price overreaction and delayed reaction to the profitability of contrarian strategies. The evidence indicates that stock prices overreact to firm-specific information, but react with a delay to common factors. Delayed reactions to common factors give rise to a size-related lead-lag effect in stock returns. In sharp contrast with the conclusions in the extant literature, however, this article finds that most of the contrarian profit is due to stock price overreaction and a very small fraction of the profit can be attributed to the lead-lag effect. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 8 (1995)
Issue (Month): 4 ()
Pages: 973-93

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Handle: RePEc:oup:rfinst:v:8:y:1995:i:4:p:973-93

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