Momentum, Contrarian, and the January Seasonality

42 Pages Posted: 23 Aug 2010 Last revised: 30 Apr 2012

See all articles by Yaqiong (Chelsea) Yao

Yaqiong (Chelsea) Yao

Lancaster University - Management School; New York University (NYU) - Leonard N. Stern School of Business

Date Written: October 26, 2011

Abstract

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.

Keywords: Momentum, Contrarian, Seasonality, January

JEL Classification: G12, G14

Suggested Citation

Yao, Yaqiong (Chelsea), Momentum, Contrarian, and the January Seasonality (October 26, 2011). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1663686 or http://dx.doi.org/10.2139/ssrn.1663686

Yaqiong (Chelsea) Yao (Contact Author)

Lancaster University - Management School ( email )

Department of Accounting and Finance
Lancaster University Management School
Lancaster, LA1 4YX
United Kingdom
+44 (0)1524 510731 (Phone)

New York University (NYU) - Leonard N. Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY NY 10012
United States

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