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The Contrarian Investment Strategy Does Not Work in Canadian Markets


  • Kryzanowski, Lawrence
  • Zhang, Hao


This paper tests the overreaction hypothesis using monthly data for stocks listed on the Toronto Stock Exchange over the 1950–1988 period. Unlike De Bondt and Thaler (1985), (1987), it finds statistically significant continuation behavior for the next one (and two) year(s) for winners and losers, and insignificant reversal behavior for winners and losers over longer formation/test periods of up to ten years. While the systematic risks of the winners decrease significantly over all test periods, the systematic risks of the losers increase significantly for only the 12-month formation/test periods (unlike Chan (1988)). The only significant change in variance from the formation to test periods occurs for the losers for the 12-month formation/test periods. The findings are robust for January versus non-January and size-based portfolios (unlike Zarowin (1989), (1990)). The findings are robust for various performance measures (specifically, market-adjusted CAR, and the Jensen (1968) and Sharpe (1966) portfolio performance measures).

Suggested Citation

  • Kryzanowski, Lawrence & Zhang, Hao, 1992. "The Contrarian Investment Strategy Does Not Work in Canadian Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(03), pages 383-395, September.
  • Handle: RePEc:cup:jfinqa:v:27:y:1992:i:03:p:383-395_00

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    Cited by:

    1. Bartholdy, Jan, 1998. "Changes in earnings-price ratios and excess returns: A case of investor over-reaction," International Review of Financial Analysis, Elsevier, vol. 7(3), pages 237-252.
    2. Gabriel Hawawini & Donald B. Keim, "undated". "The Cross Section of Common Stock Returns: A Review of the Evidence and Some New Findings," Rodney L. White Center for Financial Research Working Papers 7-97, Wharton School Rodney L. White Center for Financial Research.
    3. Antonios Antoniou & Emilios Galariotis & Spyros Spyrou, 2006. "The effect of time-varying risk on the profitability of contrarian investment strategies in a thinly traded market: a Kalman filter approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(18), pages 1317-1329.
    4. Baytas, Ahmet & Cakici, Nusret, 1999. "Do markets overreact: International evidence," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1121-1144, July.
    5. Walid Saleh, 2007. "Overreaction: the sensitivity of defining the duration of the formation period," Applied Financial Economics, Taylor & Francis Journals, vol. 17(1), pages 45-61.
    6. Gaunt, Clive, 2000. "Overreaction in the Australian equity market: 1974-1997," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 375-398, July.
    7. Gülin Vardar & Berna Okan, 2008. "Short Term Overreaction Effect: Evidence on the Turkish Stock Market," Papers of the Annual IUE-SUNY Cortland Conference in Economics,in: Proceedings of the Conference on Emerging Economic Issues in a Globalizing World, pages 155-165 Izmir University of Economics.
    8. Daske, Stefan, 2002. "Winner-Loser-Effekte am deutschen Aktienmarkt," SFB 373 Discussion Papers 2002,87, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    9. Bowman, Robert G. & Iverson, David, 1998. "Short-run overreaction in the New Zealand stock market," Pacific-Basin Finance Journal, Elsevier, vol. 6(5), pages 475-491, November.
    10. Asiya Sohail & Attiya Yasmin Javid, 2014. "The Global Financial Crisis and Investors’ Behaviour; Evidence from the Karachi Stock Exchange," PIDE-Working Papers 2014:106, Pakistan Institute of Development Economics.
    11. Guglielmo Maria Caporale & Luis Gil-Alana & Alex Plastun, 2018. "Short-Term Price Overreactions: Identification, Testing, Exploitation," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 913-940, April.
    12. Kwame Addae-Dapaah & James Webb & Kim Ho & Yan Tan, 2010. "Industrial Real Estate Investment: Does the Contrarian Strategy Work?," The Journal of Real Estate Finance and Economics, Springer, vol. 41(2), pages 193-227, August.
    13. Gunaratne, P. S. M. & Yonesawa, Y., 1997. "Return reversals in the Tokyo Stock Exchange: A test of stock market overreaction," Japan and the World Economy, Elsevier, vol. 9(3), pages 363-384, August.
    14. Aboulamer, Anas & Kryzanowski, Lawrence, 2016. "Are idiosyncratic volatility and MAX priced in the Canadian market?," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 20-36.

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