Contrarian Strategies and Cross-Autocorrelations in Stock Returns: Evidence from France

40 Pages Posted: 7 Nov 1998

See all articles by Michel Dubois

Michel Dubois

University of Neuchatel - Institute of Financial Analysis

Jean-Francois Bacmann

RMF Investment Management

Date Written: October 1998

Abstract

The aim of this paper is to study the profits of a contrarian strategy on the French Stock market. The profits of the standard contrarian strategy (sell winners and buy losers in all states of the nature) lead to smaller but still significant profits in France. These profits are bigger for those stocks which are held long and are more likely to occur when the market is bullish. We examine the lead-lag relation between a large size firms portfolio and small size firms portfolios. We do not find evidence of an asymmetric reaction to bad and good news as in MacQueen et al. (1996).

Finally, we show that overreaction to firm specific information is the primary source of contrarian profits and that the decomposition is robust to the factor model chosen to describe asset returns. The performance of the standard strategy is obtained by capturing the profits due to the overreaction of the stocks shorted. The long side serves as a partial hedge against market fluctuations. This asymmetry was not documented by previous research and deserves a closer look in order to determine if it is specific to the French Stock market.

JEL Classification: G12, G14

Suggested Citation

Dubois, Michel and Bacmann, Jean-Francois, Contrarian Strategies and Cross-Autocorrelations in Stock Returns: Evidence from France (October 1998). Available at SSRN: https://ssrn.com/abstract=138176 or http://dx.doi.org/10.2139/ssrn.138176

Michel Dubois (Contact Author)

University of Neuchatel - Institute of Financial Analysis ( email )

Pierre-a-Mazel, 7
Neuchatel, 2000
Switzerland
41 32 718 13 66 (Phone)
41 32 718 13 61 (Fax)

Jean-Francois Bacmann

RMF Investment Management ( email )

Huobstrasse 16
8808 Pfaeffikon SZ
Switzerland
41 55 417 77 10 (Phone)
41 55 417 77 11 (Fax)

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