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Momentum, contrarian, and the January seasonality

  • Yao, Yaqiong
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    This paper reexamines the apparent success of two prominent stock trading strategies: long-term contrarian and intermediate-term momentum. The paper demonstrates that long-term contrarian is entirely attributable to the classic January size effect, rather than to investor overreaction, as argued by De Bondt and Thaler (1985). Further, the paper also resolves the Novy-Marx (2011) concern about whether return autocorrelation “is really momentum” by demonstrating that the superior performance of intermediate-term momentum is due to strong January seasonality in the cross-section of returns. The implications are that long-term contrarian must be considered largely illusory, and intermediate-term momentum must take account of annual seasonalities in returns.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426611003499
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 10 ()
    Pages: 2757-2769

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:10:p:2757-2769
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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