Comparison in Measuring Effectiveness of Momentum and Contrarian Trading Strategy in Indonesian Stock Exchange

76 Pages Posted: 28 Oct 2010

See all articles by Rizky Luxianto

Rizky Luxianto

University of Indonesia - Faculty of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 11, 2010

Abstract

This working paper wants to explore the effectiveness of momentum or contrarian strategy in Indonesian Stock Exchange using different methods in measuring the performance. The point of momentum or contrarian strategy is selecting winner (stocks with highest gain) or loser stock (stocks with highest loss) and then buy or sell it depend on the research result. This research using three methods in measuring performance used to select winner and loser stock. The first method is using cross section relative return, the second method is using cross section relative return plus risk component (return divided by standard deviation), and the third method is using historical relative return instead of cross section. The result is that, all of those three methods prove that momentum strategy is effectively applicable for winner stock, so in the next period winner stock will continue to make profit, while for loser stock, it is more effective to use contrarian strategy because in the next period, loser stock will rebound and make profit after suffering from high loss.

Keywords: momentum strategy, contrarian strategy, behavioral finance, stocks market

JEL Classification: E62, R53

Suggested Citation

Luxianto, Rizky, Comparison in Measuring Effectiveness of Momentum and Contrarian Trading Strategy in Indonesian Stock Exchange (August 11, 2010). Available at SSRN: https://ssrn.com/abstract=1680228 or http://dx.doi.org/10.2139/ssrn.1680228

Rizky Luxianto (Contact Author)

University of Indonesia - Faculty of Economics ( email )

Campus UI Depok
Depok, West Java 16424
Indonesia

Register to save articles to
your library

Register

Paper statistics

Downloads
212
Abstract Views
1,090
rank
142,998
PlumX Metrics