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Long-term return reversal: Evidence from international market indices

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  • Malin, Mirela
  • Bornholt, Graham

Abstract

This paper documents evidence of reversals in the long-term returns of international equity markets. We use recent short-term performance to better select contrarian securities that appear ready to reverse. Our late-stage contrarian strategy consistently provides stronger evidence of long-term return reversal than does the traditional pure contrarian strategy when applied to developed and emerging market indices. Despite an absence of cross-sectional contrarian profits for developed markets in our post-1989 subsample, longitudinal analysis provides strong evidence of reversals during this period. Overall, our results suggest that the reversal of long-term returns may be stronger and more pervasive than is generally understood.

Suggested Citation

  • Malin, Mirela & Bornholt, Graham, 2013. "Long-term return reversal: Evidence from international market indices," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 1-17.
    • Handle: RePEc:eee:intfin:v:25:y:2013:i:c:p:1-17
    DOI: 10.1016/j.intfin.2013.01.002
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    More about this item

    Keywords

    Contrarian effect; International financial integration; Developed markets; Emerging markets;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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