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Industry long-term return reversal

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  • Bornholt, Graham
  • Gharaibeh, Omar
  • Malin, Mirela

Abstract

Given that extreme industry returns may herald long-term structural changes in the industries involved that may eventually lead to reversals in industry fortunes, we investigate the evidence for long-term return reversal in industry returns. Our study employs both pure contrarian strategies and late-stage contrarian strategies, and includes extra-long strategy formation periods (up to 132 months) to allow sufficient time for structural changes to begin. We find strong evidence of reversals in the long-term returns of industries. These reversals continue for many years (with valuation effects observed up to 10 years after commencement) and are difficult to reconcile with overreaction.

Suggested Citation

  • Bornholt, Graham & Gharaibeh, Omar & Malin, Mirela, 2015. "Industry long-term return reversal," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 38(C), pages 65-78.
    • Handle: RePEc:eee:intfin:v:38:y:2015:i:c:p:65-78
    DOI: 10.1016/j.intfin.2015.05.013
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    Cited by:

    1. Zaremba, Adam & Umutlu, Mehmet & Karathanasopoulos, Andreas, 2019. "Alpha momentum and alpha reversal in country and industry equity indexes," Journal of Empirical Finance, Elsevier, vol. 53(C), pages 144-161.
    2. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, September.
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    4. Kobinger, Sonja & Bornholt, Graham & Malin, Mirela, 2020. "Long-term time series reversal: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 65(C).
    5. Victor Troster & José Penalva & Abderrahim Taamouti & Dominik Wied, 2021. "Cointegration, information transmission, and the lead‐lag effect between industry portfolios and the stock market," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(7), pages 1291-1309, November.

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    More about this item

    Keywords

    Late-stage contrarian; Reversal; Mergers; Acquisitions;
    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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