Industry Long-Term Return Reversal

35 Pages Posted: 18 Jun 2015

See all articles by Graham N. Bornholt

Graham N. Bornholt

Griffith University

Omar Gharaibeh

Griffith University - Griffith Business School

Mirela Malin

Griffith University - Department of Accounting, Finance and Economics

Date Written: February 11, 2015

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 ten years after commencement) and are difficult to reconcile with overreaction.

Keywords: late-stage contrarian, reversal, mergers, acquisitions

JEL Classification: G14, G15

Suggested Citation

Bornholt, Graham N. and Gharaibeh, Omar and Malin, Mirela D., Industry Long-Term Return Reversal (February 11, 2015). Available at SSRN: https://ssrn.com/abstract=2620085 or http://dx.doi.org/10.2139/ssrn.2620085

Graham N. Bornholt (Contact Author)

Griffith University ( email )

Gold Coast Campus
Gold Coast QLD, 4222
Australia

Omar Gharaibeh

Griffith University - Griffith Business School ( email )

Brisbane, Queensland 4111
Australia

Mirela D. Malin

Griffith University - Department of Accounting, Finance and Economics ( email )

Gold Coast Campus
Gold Coast, Queensland 4222
Australia
+61 7 5552 7719 (Phone)

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