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Applicability of Contrarian Strategy in the Bombay Stock Exchange

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  • Stuart Locke

    (Stuart Locke, Associate Professor of Finance, Department of Finance, University of Waikato, Hamilton, 2001, New Zealand. E-mail: smlocke@waikato.ac.nz, Tel: +64 7 838 4756, Fax: +64 7 838 4331.)

  • Kartick Gupta

    (Kartick Gupta, Ph.D. (Finance) candidate, Department of Finance, University of Waikato, Hamilton, 2001, New Zealand. E-mail: kartick@waikato.ac.nz, Tel: +64 7 8384466 extn. 8251, Fax: +64 7 838 4331.)

Abstract

The application of contrarian strategies in the Bombay Stock Exchange (BSE) are examined in this paper, shedding further light on competing explanations underlying this anomaly. Three specific issues are investigated using several models. First, can a trader book a profit by employing a contrarian strategy? The test portfolio earned a contrarian profit of 74.40 per cent above the market return. Second, risk differences between Winner and Loser portfolios are found to be an independent phenomenon. Third, the size of the firm appears to play a vital role in explaining the overreaction hypothesis.

Suggested Citation

  • Stuart Locke & Kartick Gupta, 2009. "Applicability of Contrarian Strategy in the Bombay Stock Exchange," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 8(2), pages 165-189, May.
    • Handle: RePEc:sae:emffin:v:8:y:2009:i:2:p:165-189
    DOI: 10.1177/097265270900800204
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    6. Shah Saeed Hassan Chowdhury & Rashida Sharmin & M Arifur Rahman, 2019. "Presence and Sources of Contrarian Profits in the Bangladesh Stock Market," Global Business Review, International Management Institute, vol. 20(1), pages 84-104, February.
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    8. Ali Fayyaz Munir & Shahrin Saaid Shaharuddin & Mohd Edil Abd Sukor & Mohamed Albaity & Izlin Ismail, 2021. "Financial liberalization and the behavior of reversals in emerging market economies," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(6), pages 1565-1582, January.

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    More about this item

    Keywords

    Contrarian strategy; efficient market hypothesis; size effect; JEL Classification: G14; JEL Classification: G15;
    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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